When Lenny first came into our office in October 2012, he had been struggling to get mortgage relief from his bank to no avail, for several years. His mortgage problems began when he went through a costly divorce, causing him to fall $10,000 behind in his payments. Ultimately, this caused him to be sued for foreclosure. As we see so often, even though Lenny was back on his feet financially, his bank (actually his loan servicer) refused to work with him, even though he was ready, willing and able to resume payments. Unfortunately, this phenomenon is universal these days, as the natural fallout of private loan securitization, legalized just over a decade ago, in that foreclosure is profitable. This is so because the banks which have control over your loan do not own it, yet have financial products such as mortgage insurance and credit derivatives, which pay off upon your foreclosure.
As we also often see, once you stand up to the banks, call them out on their fraud and expose the weaknesses of their case, they do a tactical retreat in their push to foreclose. The reason for this is what we call “the elephant in the room.” By definition, a securitized loan is one which is bundled with thousands of others in a loan pool or trust. This means that if even one of those loans is exposed to be fraudulent, the collectability of the rest is put in jeopardy. The elephant in the room is the unspoken but very real fear on the part of the banks that billions of dollars of loans could be lost. And that is a risk they are often unwilling to take. The result often is that the banks blink, which in turn leads to a great loan modification for the financially-stressed homeowner.
In Lenny’s case, the elephant in the room concept led to great results. In the end, his $81,000 loan balance could be reduced by almost half, to $44,000, should he make his payments faithfully for the next two years. In the meantime, his monthly payment of principal and interest falls from $580 to $377. Now that’s what you call the bank blinking! And as a result, Lenny will remain safely and securely in his home for years to come.
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Copyright 2013 Daniel L. McGookey