Lowell Deeds

The latest on real estate recordings and new technology from the Middlesex North Registry of Deeds in Lowell

November 13, 2008

Loan Modification

by @ 11:51 am. Filed under Archived, Real Estate

This past Tuesday, the director of the Federal Housing Finance Agency announced the launching of a streamlined program to modify the loans of homeowners heading for “preventable foreclosures.” The program is available to homeowners who have missed three or more monthly mortgage payments and who own and occupy the home as a personal residence. The program would use several tactics – reducing the mortgage interest rate, extending the life of the loan, or deferring the repayment of part of the principal – to reduce the monthly mortgage payment to no more than 38% of the household’s gross monthly income. None of these methods is intended to give the homeowner a windfall; the objective is to keep people in their homes by making the monthly payment affordable.

Unfortunately, this program will only be available to a minority of homeowners who have troubled mortgages. According to FHFA, Fannie Mae and Freddie Mac own or guarantee about 58% of all single family mortgages in the US, but mortgages in this group account for only 20% of seriously delinquent loans. So called “private label securities” while only accounting for 20% of single family mortgages, are responsible for 60% of serious delinquencies.

The problem with these “private label securities” is that no one has final say on the fate of any one mortgage. Instead, thousands of mortgages were pooled together and then divided up into mortgage backed securities. A single bond from this fund might contain a fractional share of hundreds of different mortgages. To get the “owner” to modify a particular mortgage might require the consent of dozens of bond holders, an unlikely idea made even more fanciful by the fact that the value of these bonds is also insured by companies such as AIG. If the loan is modified and the bond loses value, does the insurer make up the difference? It’s such a tangled web of relationships and legal obligations that no one can predict with any degree of confidence what will happen in the coming weeks and months.

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