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Are You a Home Owner Who Can’t Get Your Home Loan Modification Approved?

Why Can't I Get My Home Loan Modification Approved?

If you are one of the many homeowners thinking about applying for a loan modification on your home loan - before you begin the process  it might be worth your while by asking the question “who owns my note?”  to the bank where you make your mortgage payment.

Many of us are wondering why home loan modifications are being approved for some homeowners and not for others – there seems to be no rhyme or reason why- nobody has an answer-everyone is bewildered.

I have just read a great article written by another realtor ‘Katerina Gasset’ shedding some light on this murky grey questionable area that could affect so many people’s lives.

If Fannie Mae or Freddie Mac owns your home loan – you have a much better chance of getting your loan modification approved if you qualify. If it is a private group of investors, your chances go down considerably.

One in eight homeowners’ loans were sold to  investors on Wall Street. Back in the bad old days a bunch of loans were packaged together – these were called mortgage backed securities. They were then sold off to investors. Many of these borrowers were given loans they did not qualify for, and many did not read the fine print and did not realize how high their mortgage payment might go when adjusted.

The Federal Making Homes Affordable Program states “lenders who participate in the program must modify all homeowners that qualify.” The exception is when the investor has a rule that they do not allow modifications.

So why would investors say NO to your loan modification request? The servicers (the banks who you make the payments to), such as Chase, GMAC, Wells Fargo – the list goes on and on, have agreements, (contracts) that they sign with investors. These agreements contain the rules for modifications. These agreements are called Pooling and Servicing Agreements which are know as PSA’s. The PSA is more often than not the reason for them not being able to do the loan modification or release the deficiency on a short sale. The language in the PSA seems to be the cause of a concern of law suits! It states something to the effect of the servicer can “waive, modify or vary any term” as long as the servicer makes a “reasonable and cautious determination” that the modification is in the investor’s best interest. The language itself in these agreements is enough for the servicers legal counsel to be concerned with the investor suing them for not acting in the best interest of the investor – they cannot put the homeowner ahead of the investor! If they want continued business from the investors they need to make sure they are looking out for the best interest of the investor.

The treasury department has stated that the fear of lawsuits is the greatest stumbling block in getting servicers to approve the loan modification. Their job is to protect the assets to which they have been entrusted with, your mortgage backed security.

The Treasury Department have stated they can relieve some of the pressure of the fear of lawsuits by standardizing requirments for loan modifications and also provide some kind of calculation to figure out if the investor will make more money by the loan modification or by the foreclosure. Lets hope they do this soon, so more people can be allowed to stay in their homes.

These mortgage backed securities were bought by pension funds and retirement plans for people like you and me – so some of us might even be one those ‘investors’ who own the very loan you are trying to get modified!

Katerina Gasset contributed to this article.