A Rush To Foreclose: Five Reasons As To Why Your Banker Doesn’t Love You Anymore

February 5th, 2011 The Rogue Economist 0 Comments

Everyone’s hearing about all kinds of problems that people are experiencing with their lenders or mortgage servicing companies. That they won’t return phone calls, and won’t help with home loan modifications, short sales, or payment options created specifically to help keep foreclosures from happening. It’s almost as though banks really want you to go into default on your bank loan.

So where’s the love, man? And exactly why do the banks and mortgage loan servicers apparently hate us so much? Well, there are actually some really good reasons that the mortgage lenders are in a nasty frame of mind at the moment, and I’ve written five of these down below for your reading pleasure.

Reason 1: Because You’re a Deadbeat!

“But!”, you assert “I’m not a deadbeat! I’ve been paying my mortgage on time! I just need some assistance due to circumstances beyond my control.” You and I know there are a sizable group of men and women out there who could possibly avoid foreclosure if only given a bit of assistance, however, many banks and mortgage servicing companies don’t see you this way. This is due to the fact that right after they issued you your loan, they bundled your mortgage loan up together with thousands of other loans in a matching risk grouping, and then marketed that investment (known as a CDO) piecemeal to various speculators. When a sufficient number of your fellow homeowners in that CDO defaulted on their mortgage, the entire investment went bad, and those CDO purchasers returned furious with the loan company that sold them the CDO. And now, even though the government bought back a lot of those CDO’s in order to save the banks, they still believe you to be scarcely a heartbeat away from going into default, even when you possess a spotless payment history.

In addition to that, underwriting criteria to get a mortgage before the sub-prime turmoil were so lax in comparison to nowadays that your bank now views you as under qualified for the bank loan you have. Put differently, they see most loan holders as not being good enough for his or her mortgage. It doesn’t matter if it was initially their choice to allow people to have loans based on a written declaration of yearly income alone (“liar loans”), they currently view everyone as under qualified.

Reason 2: Because The Courts Let Them.

The regions most affected by the sub-prime turmoil are now overwhelmed by foreclosures. Florida is one such case. Their legal courts have recently been so bogged down by cases that they had to call judges out of retirement to officiate in special “express” courtrooms designed to get through the greatest number of hearings in a given day as possible. Under these circumstances, it’s difficult for a judge to give the time needed to determine the distinction between a homeowner lying to save his or her house, and one that has a factual right to a full trial, instead of a summary judgment favoring the mortgage servicing company.

These kinds of conditions help make it amazingly easy for any lenders or servicers who wish to fudge things a bit in their favor by trying to bend the rules on documentation. And it offers little incentive for lenders and mortgage companies to settle out of court with home loan modifications or short sales once they are awarre that the judges have been siding with them.

Reason 3: Because Loan Modifications and Short-Sales Are Making Them Lose Money.

When the banks created these massive investments consisting of thousands of homes each, little allowence was made in the investments themselves for issues such as house loan modifications and short sales. The buyers of such investments would have never purchased them if they knew the lenders could’ve taken the income from the investment to zero simply by making repayment deals with individual homeowners, so the bankers that are servicing them are obligated to pay the owners of the CDO without changes. And yes, our government purchased many of those CDO’s when their default rates went bad, nonetheless banks are still legally required to pay out the revenue streams from the remaining mortgage loans in them to the government.

Therefore, if your mortgage loan has been wrapped up in one of these horrific monster investment products along with ten thousand other homes, and the lender allows you to get a modification then they have to pay the difference, or they will have defaulted on their accountability as the servicer. But these investments were originally sold with an expected foreclosure rate, with a supplementary type of insurance policy (known as a CDS) which was intended to take up the slack if foreclosures became extremely bad. So if you default, then your loan servicer just has to handle the foreclosure and then give any proceeds from that to the investment holding company.

Providing you with another chance with your mortgage loan may often cost your lender money. However, foreclosing on the home might generate them some income in procedural charges. Therefore it’s often in the bank’s optimum interest to make things as tough as possible for anyone to get a short sale or mortgage loan adjustment. With many cases, the loan servicing banks won’t even have an ownership stake in the mortgages they are servicing any more, which takes us to the next couple of good reasons why you’re not seeing any love coming from your banker.

Reason 4: Because They don’t Want to Have to Battle Against Some Other Claimant Over Your Home.

“What?”, you say. “Why might they end up fighting with each other over my house?” Once more, it’s because of all of those giant investments which the financial institutions made by bundling up thousands and thousands of home loans together. You see, the financial firms just didn’t offer these investments to a sole purchaser. Rather, they divided up the income streams by grouping homeowner risk levels and by separating the interest payments from principle payments. So technically, there usually are numerous interests upon each house inside that CDO. Furthermore, recently there have been instances where the ownership of houses in the CDO (the physical tranches) was sold to several parties.

Various lenders and house loan companies are fighting savegely right now to foreclose on as many houses as they possibly can in a gambit to get a house’s value before the wolves can get a peice of it. So this time around, the big bad wolf can actually blow your house down.

Reason 5: Far More Than Any Previous Reason, Your Lender Doesn’t Like You Because They’re Afraid of You.

Which takes us to the true heart of the matter, and that is documentation. Any time a house’s mortgage is bought or sold, a paper called an assignment is necessary in order to correctly transfer the right to foreclose on that property. Anyone attempting to foreclose upon a property has to have that assignment (in addition to many other court required documents) to be able to have standing within the courtroom as a claimant for the house. However, somewhere between the loan servicers, the huge trusts which kept the physical assets of the CDO’s, but who couldn’t hold on to the notes for tax reasons, and an electronic registry known as MERS which was assumed to be tending to loan note assignments, but wasn’t, someone neglected to do the correct mortgage note assignments. Because of this the paperwork trail for the legal right to foreclose on a large number of the home loans in the US is currently nearly impossible to prove to a court’s standards. In quite a few instances, that paperwork trail perished with a good number of the hedge funds and trusts that declared bankruptcy in the bust.

So what exactly have the banks been doing whenever they can’t legitimately demonstrate that they’ve got actual court standing to foreclose on a house? Purportedly, they’ve started “reworking” the legal documents and slipping them past those overworked judges. But now that they’ve been caught with their hands in the judicial cookie jar, they definitely won’t want everyone to know about it, any more than just in the sence of “we made a mistake”, and “it’s being fixed”, since if you know all about it, you might realize that it’s not only the current home foreclosures that happen to be in question. Many of the current home loans out there might legally be nullified as having no standing in the courts in the event that the homeowner paying their house loan went to court and made those banks and holding companies to demonstrate their standing.

The easiest and most effective technique for a bank is to push a property owner to give up their claim to the house through foreclosing on them as quickly as they can. Then hopefully, the now displaced homeowner will simply go on without further questioning the validity of their bank’s standing in court.

So right now, it’s in your bank’s or mortgage loan servicer’s best interest to foreclose on you. That’s the reason why there’s no love there.