The Fairy Godmother and the mortgage modification myth

Today we saw the administration roll out another public-relations effort to somehow push mortgage servicers into the position of actually modifying loans on a permanent, as opposed to trial basis.

This time, instead of just handing them a few extra thousand dollars to try their best, now Washington thinks they’ll be able to embarrass them into doing something on behalf of the victims of predatory lending.

This is a really cruel thing to do to people who are hoping to keep their homes. Millions of people are reading the news and hoping they’re not going to have to be forced into finding alternative places to live.

It’s hard for us to understand why Washington can’t fathom the fact that mortgage servicers don’t have to do anything but look out for their own interests.

Washington helped Wall Street make this infernal machine and is simply powerless to control it when it runs amok.

The number of loans that will actually be modified is statistically invisible. Most will turn out to be little more than forbearance agreements to give the servicer time to figure out whether or not the borrower how much the borrower can pay – while collecting the bonus from the government. When it turns out that the borrower can’t afford to live where they live, well, we all know the outcome and that is foreclosure.

Worse yet – these alleged “modifications” indemnify the servicer against any legal action the borrower might bring for not only past actions but future abuses.

So here we are again, back to preaching that the only real solution is for people to stay out of these situations.

The Fairy Godmother isn’t coming, and nothing Washington can do or is doing is going to save the average victim of predatory sub-prime lending on a long-term basis.

If you’re going through the process of trying to get a modification, we strongly recommend you have a plan B and a plan C. The last thing you want is to come back to a house you think is yours and find the locks changed and your belongings on the street or in a storage space.

Craig and Dave

It's Getting Stranger by the Day

Like the TILA rescission trend we wrote of some months ago, there is another strategy gaining traction in this foreclosure tsunami, the produce-the-note defense.

It can work sometimes. It's VERY dependent on the judge and how he or she feels about the rules for standing of parties to bring an action to their court. But it's almost always a temporary delay because any case dismissal under these circumstances is done "without prejudice," which means the plaintiff can sue again as soon as they produce the required evidence of standing or sue on behalf of the correct party.

From what we've seen, the creditor's bar is working to educate their side of the legal profession as fast and as furiously as the consumer defense community is educating counsel on how to use it to defend against a foreclosure.

We don't believe this is territory for a borrower to head into on their own. It isn't a matter of the loan terms and conditions or TILA or RESPA violations. It's a matter of court rules, and those areas of the law vary from state to state and district to district.

One size does not fit all!

Craig and Dave