Lowell Deeds

When talk turns to helping homeowners who are having trouble paying their mortgages, reasonable people ask “why don’t the holders of these mortgages modify their terms since even a modified yet still performing mortgage is better than a foreclosed one.” This approach would make abundant sense and has worked in during troubled real estate markets in the past. But the modification tool is not so easily employed this time due to the legal entanglements resulting from the “creative” mortgages used to fund this just finished housing bubble. A small article in today’s New York Times illustrates the current predicament. Countrywide Financial Corporation has reached a settlement with the attorneys general of eleven states in which Countrywide agreed to modify the terms of up to 400,000 of its loans. Now Greenwich Financial Services, a hedge fund that invested heavily in bonds secured by Countrywide mortgages, has sued Countrywide claiming that the contract between Countrywide and Greenwich completely deprived Countrywide of the power to modify these loans in any way and that such a modification would cause significant losses to Greenwich and its investors. No trial date has been set. This story illustrates how, in the modern mortgage business, the entity making the loan is just a small cog in a worldwide financial system and retains little if any control over the mortgage once it’s been executied.