Loan modification and short sales are a sucker’s game the banks play with you. They are designed to lure you into a false hope and squeeze you for every last dime the they can get out of you before they throw you into the street.
Here’s why.
First and primarily, you are negotiating with your servicing entity, not the true owner of the note. As such, the person you are talking to has no authority to do anything. They can’t do anything without permission from the note holder. And who is the note holder? No one knows and that is the entire basis of this website.
But that’s not all. If the servicing agency tries to pull certain notes out of a securitized trust for modification, he must buy those individual notes outright at the value the trust would have seen for that note had it held it to maturity. No one wants to do that.
As evidence, Countrywide settled a suit from several state Attorneys General to modify the terms of what the attorneys general had called predatory loans. No sooner had Countrywide entered into that agreement than they were served with a multi-billion dollar class action lawsuit from the bondholders demanding Countrywide buy the notes under question at full value before re-negotiating any terms.
Next, you need to understand there is big money in foreclosures and short sales. One of the metrics of a bank’s health is the number of performing loans on its books. If a bank forecloses on a home or submits to a short sale, they remove a non-performing loan from their books. Further to that, Fannie & Freddie have cut a deal with the banks where they will receive 90% of the face value in the event of a foreclosure and 70% of face value in the event of a short sale.
So if a home is foreclosed upon, the bank collects upon the insurance on the default through the SIV (Structured Investment Vehicle) as well as 90% of the face value from Fannie & Freddie. They are paid twice. In addition, they own a hard asset (your home) which counts towards the bank’s overall health.
Another way they make money is at the Sherriff's sale itself. Oftentimes, the banks are the only one's who show up for the sale. They buy the houses out of a special account and then sell or transfer the house to its internal REIT (Real Estate Investment Trust) who then contracts with the local rental agency(ies) to manage the houses as rental properties. They buy them on the cheap and are making bank in short order from the rental income.
In the event of a short sale, they get the money from the short sale (performing note), 70% of the face value of the old note (it has nothing to do with the real value), plus, unless you are careful, they can come after you for the shortage. Paid Thrice.
Our Federal Government has a program which guides distressed homeowners through the short sale process. This program is supposed to ease the transition to homelessness by facilitating short sales instead of going through the whole foreclosure. Buried in the agreement at the bottom of page 3 in a 7 page document is language which forces the homeowner to give up their interest in the house through a Deed in Lieu of Foreclosure in the event there is no short sale. So even if you try to do the short sale to get away from the house as quickly as possible, if it doesn't go through, which, as we know will rarely happen as the person with actionable interest in title can never be found, you give up the house without them having to go through the expense of a foreclosure. When can you move out?
And let’s not forget the money these sales generate for title companies, real estate agents (in the event of a short sale and sale of REO's (Real Estate Owned)), foreclosure mills, house rental agencies, appraisers and mortgage bottom feeders like PennyMac – a company formed by former Countrywide execs to take advantage of the collapsing mortgage market.
If you are a homeowner, you need to check the title on your deed. You can do this by a quick trip to the recorder’s office at your county courthouse. Do not bother with your title company. What they have will most likely mirror what you will see at the courthouse, but not necessarily. The only information which matters is that which is at the courthouse.
If you see MERS on your title, or verbiage like CWALT Inc Alternative Loan Trust 2005-28C3 Mortgage Pass Through Certificates, then there is a high probability your mortgage has been securitized and as such there is a real chance that in addition to no one being able to foreclose, no one is able to deliver clear title.
If you are in foreclosure, or fighting a rear guard action to forestall foreclosure, do NOT pin your hopes on loan modification or a short sale. Those two are designed to suck you of the money you need if you choose to fight. Save your money, save your headache and heartache. Do not bleed your savings to keep paying your mortgage. You can play the game so the people on the other side of the phone are happy, but know going into it that the whole purpose is to make you feel good as they bleed you for a few more months and then foreclose anyway. Don’t play.
Short sales, loan modifications and even deed in lieu of foreclosure are the way the herd is trained to operate. The herd will pressure you to do what the herd does because that is what the herd does. But always remember, if you follow the herd, they are quite liable to run you over the cliff.
Do the research. Trust your mind. Hire a good attorney. Challenge the system. Spread the word.
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