Mortgage Modification is Not Your Friend!

Copyright © 2010 John Gliha

Mortgage Modification and Short Sale have become somewhat brand names in the last year. Consumers use these terms as freely as they do "bread and butter" without understanding the first aspect of what they mean.

A mortgage modification is when a secured lender changes the loan agreement terms so that the loan can stay current. This is a deal between the home owner or borrower and the bank.

A short sale involves a third party investor or buyer of secured property in which the debt on the property is forgiven for less money than is owed so that a new buyer can own the property under different terms. The bank accepts less money to pay off the debt and charges the seller or former borrower the difference, either by suing him or sending him a 1099 for imputed income taxes.

You might think the banks would be clamoring to keep their customers paying on the mortgage terms, even if it means less money, just to keep the cash flow. However, there are two overwhelming factors that preclude this from happening.

1. Approximately 92% of mortgage loan agreements and lenders are legally unable to modify the terms of a mortgage agreement because of third party contracts. The third party contracts are usually known as "security purchase agreements" in which the original lender has sold or transferred the mortgage account into a security that is registered with the SEC. If a mortgage company modified the terms of the mortgage security they would be required to remove it from the security fund. This would change the risk to investors in those funds and would create a myriad of legal liabilities for the security manager and fund owner. To engage in modification would be a securities violation. Like a hypnotist, banks lure unassuming consumers into making partial payments on a promise of doing a mortgage modification. Many people soon find out that the bank's employees don't return calls or follow through on any verbal promises.

2. Banks are so selfish and will look for anyway to keep mortgages, going through modification, off of their records because it might adversely affect their good credit rating. After the banking system allowed Lehman Brothers to dive, it sent the message to all banks around the world that they could not safely lend to each other. This locked up the banks' ability to sell or transfer their mortgage security holdings. Once the music stopped (so to speak) banks like Countrywide and IndyMac were "left holding the bag".

Consumers need to wake up and stop looking at their mortgage as if it were a loan from their uncle Bob.

The bank doesn't care about you, they hate you, they want you to fail, to be a renter, and they want to exclude you from the social status you thought you had with a good credit rating. But there is hope. There is a legal way to oppose this evil system of involuntary servitude.