Once upon a time, in the olden days (at least 25 years ago) you went to the bank for a mortgage. The banker checked your finances, and your down payment and gave you a fixed-rate, 30-year loan. Then they filed the documents away in the basement and sent you a bill every month for the payment.
And in the olden, olden days (about 50 years ago) your grandparents celebrated paying off their mortgage with a quaint "mortgage burning ceremony," throwing those paid-off documents into the fireplace.
Now we're in modern times. To get a mortgage, you didn't need a down payment, you didn't need much documentation of your finances, and you didn't need to know your banker. And your loan didn't necessarily have a fixed rate, or a fixed repayment schedule. That would be adjusted later, based on changing global interest rates.
Brokers competed to make mortgage loans and earned a commission on every deal they sent to a financial services company or bank. Those banks didn't store your mortgage in their vaults; they packaged it up with a bunch of other mortgages and sold them to investment banks. The investment banks found investors to divvy up these hundred-million-dollar loan packages, each buying a piece of the new "mortgage-backed security."
And some of those loan packages were different kinds of loans, blended together, then sliced like a meatloaf, and served to investors (banks, pension funds, hedge funds) around the world. So the first principal repayments on your loan went to one investor, while the last payments would be owned by another investor willing to accept more risk.
These package deals were attractive because mortgage loan rates were higher, and because these securities carried "ratings" indicating they were good investments. After all, it's common wisdom that people default on their mortgages only as a last resort!
Sure, the homeowner keeps making a monthly payment to one loan "servicer" -- but the "owners" of that loan are spread around the world, and a computer distributes the payments to them out of your monthly check. It's difficult, if not impossible, to get those holders together to agree on accepting a lower interest rate or lower monthly payments from a desperate homeowner.
If you were lucky enough that Fannie Mae (FNM) or Freddie Mac (FRE) took ownership of your loan, and packaged it up intact for sale to investors, you have a better chance at renegotiating the terms. Fannie and Freddie are under huge pressure from the government, after their bailout, to work with you.
But first you have to get the attention of someone at the "servicing" company, hoping they'll investigate to find the ultimate owner. Sure, they'll find you to evict you if you default on your loan. And they'll ultimately sell that foreclosed home and distribute the proceeds through their computerized system to the loan owners. But don't ask them to step in and help you avoid that fate by separating your loan from the package. They don't get paid for that!
There are a few places you can go to learn how to work your way through the system more efficiently. The Federal Housing Administration (FHA) Web site has a section describing its "Hope for Homeowners" program, which was created by Congress to help distressed homeowners.
The Department of Housing and Urban development (HUD) features on it s Web site a sample complaint letter, which you can personalize and send to your lender. By law, your lender must acknowledge your complaint letter within 20 days and respond within 60 days.
Plus, another interesting Web site, LoanSafe.org, is filled with information about fighting foreclosure, along with a blog where people share their experiences in the process with various lenders. With thousands of posts, at least you'll know you're not alone!
Bottom line: The government and the political candidates can announce all the grandiose mortgage restructuring plans they can dream up. But in real life, it's almost impossible for people caught in this trap to get out. Those mortgages aren't sitting in the bank's vault. They've been packaged, and sold, and some have even been sliced into pieces and distributed around the world.
Getting all those owners of the mortgage to agree to restructure your loan is more difficult than it was getting Congress to agree on a bailout plan. Only this delay will be even more costly to our finances, and our society. And that's The Savage Truth.
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