What might a banker do if he was sitting on a pile of defaulted mortgages and now the traditional route of foreclosure was blocked? Adding to the problems of the bankers is that there is no assurance that they even have a valid claim to foreclose given that so much of the paperwork is tainted.
One possible response would be to get all troubled borrowers to reaffirm their debt, the second is to get the trouble borrowers back to paying something on the mortgage, even if it were a fraction of what was formerly owed on a monthly basis. A loan modification would achieve both results. When a borrower signs up for a loan mod they sign new papers. A portion of this process will re-establish any loan balance that is due. The language in the mod could have new foreclosure terms that eliminate the banker’s problem with past tainted documentation. Once a borrower makes a few months of new lowered payments they are, in effect, confirming their acceptance of the new terms.
Most Mods go bust in six months. So little is accomplished from the lenders perspective. But what if the lenders motivation for doing a Mod was not to get a borrower to a loan balance and monthly nut that they could pay, but rather the motivation was to circumvent the foreclosure trap the lenders are in? A Mod could legally resolve the problems.
The story I have been hearing is that tens of thousands of Mod letters have been sent by servicers in the past few weeks. Anyone who had an application pending is all of sudden getting the happy news in the mail.
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