Consumer Law

"Securitization Is A Problem For Mortgage Workouts"

By M. Stan Herring

The CL&P Blog has posted an article based on The Office of the Comptroller of the Currency's 3rd quarter report on foreclosures and mortgage modifications. The report discusses how it is more difficult to get a mortgage modification with a securitized mortgage than with "mortgages held on the lender's own books, known as "portfolio" loans."

There are two features of loan modifications that show the big difference in securitized and portfolio loans. The first big difference is called principle reduction.

Lenders holding their own mortgages offered principal reduction in some amount for about one-third of their modifications. Servicers handling investor-owned mortgages, on the other hand, wrote down principal essentially never.

The next difference is the amount of unpaid interest and other fees.

While investors understandably would prefer to add these amounts to borrower's balances rather than write them off, the result is to increase the homeowner's debt burden, and the likelihood of eventual default and foreclosure. Lenders modifying their own loans used capitalization in fewer than 20% of their modifications, while securitized mortgage modifications included capitalization 70% to 80% of the time.

Portfolio loans and securitized loans are very different, but this information definitely shows that securitized mortgage loans are much more difficult to modify.

If you would like more information on mortgages and foreclosures, please read our articles on the subject: The Three Stages Of Foreclosure In Alabama and Wrongful Foreclosure in Alabama.

Should you have further questions, feel free to contact us through our website or by calling 205-879-2447.

Also remember you are invited to our free tele seminar on Alabama Wrongful Foreclosures set for today, January 19, 2010, at 4 pm CST.

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Full post as published by Alabama Consumer Blog on January 19, 2010 (boomark / email).