Your mortgage is more complex than it appears. While you typically only deal with your servicer, which takes your payments, credits your account, and forecloses if you default, there's another party involved in your mortgage loan.
This other party, although usually invisible to you, has the biggest stake in your mortgage. I'm talking about the investor. They're the “end user” of your mortgage. They own it and earn a profit from the interest you pay them.
Many homeowners only learn about the existence of an investor in their mortgage when they experience a hardship, can't pay their mortgage, and their servicer tells them that their investor won't allow them to get a loan modification.
Why Would An Investor Not Allow a Loan Modification?
Modifying a loan involves permanently changing one or more of its terms. Interest rates can be lowered, loan terms extended, principal reduced, and monthly payments lowered. All of that can mean less money going to the investor.
The reason your investor would deny you for a loan modification is because they believe it would be more profitable for them to foreclose rather than modify your loan. Making money is the whole point of investing, so of course they're going to choose the option that makes them the most.
Government Sponsored Enterprises (GSEs) vs Private Investors
Pension funds, hedge funds, insurance companies, banks, GSEs, and foreign banks are common investors in mortgages.
If your lender is a GSE like Fannie Mae or Freddie Mac, they are required to let the servicer consider you for the government's Home Affordable Modification Program (HAMP).
Many of the big banks, which received money from the government in the bailout, are also required to consider homeowners for HAMP modifications.
But private investors that didn't receive bailout money are under no obligation to consider homeowners for loan modifications.
Private investors can choose to give mods if they think that's the best option for them, but they make up their own rules when they do. They've been known to give modifications, but not lower the interest rate, or only allow one mod for the life of the loan.
There's no charge for a HAMP mod, but some private investors have been known to require a contribution fee of thousands of dollars to modify a loan they own. They can do whatever they want.
What To Do?
If you want a loan modification, but are told that the investor won't allow it, you can ask who the investor is and that they show you where in the contract such a restriction exists. There are instances of homeowners being told that there's a policy against giving loan mods, but there's no documentation to prove it.
And remember that if you have a Fannie, Freddie, or FHA loan, your servicer MUST review your application for a HAMP modification if you meet the qualifications. But HAMP is expiring, and you must apply by December 31 2016 if you want to take advantage of this program before it's too late.
When it comes to foreclosure and loan modifications, what you don't know can hurt you. There's a lot to know about mortgages and the legal process around foreclosure and loan modifications. The best thing you could do is get an experienced professional on your side who understands what you're going through and how to get you the best result.
Being denied for a loan modification for any reason doesn't have to be the end of your efforts to keep your home. You can usually fix what's wrong with your application and reapply. A foreclosure defense attorney can help you stay out of foreclosure for months or years while a permanent solution is pursued.
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