Staten Island Legal Services Homeowner Defense Project Staff Attorney Joseph Sant was consulted for a Pro Publica article exploring a problem that is only too common for homeowners trying to participate in a federal program created to foster loan modifications and
prevent foreclosures. Loan servicers claim that investors who own the mortgages won’t allow any modifications; however, Pro Publica's investigation reveals that in many cases, the servicers themselves are denying the modifications and then passing the buck.
SILS alumni Jeff Gentes is also quoted in the July 23rd article:
Whose decision is it?
“The very phrase ‘investor restriction,’ I think, is deliberately confusing,” says Joseph Sant, an attorney with Staten Island Legal Services, which represents homeowners in foreclosure. “What we’re talking about are not business entities or people, but inert documents.”
Typically, financial institutions set up mortgage-backed securities as a trust — legally their own entities — and then sell bonds from the trust to investors, which can range from mutual funds to pension funds. At the same time, they sign up trustees to manage the security and hire divisions of their own banks or other companies to act as servicers that work directly with homeowners.
While servicers often tell homeowners that investors decide whose loans can be adjusted, Heine, the spokesman for Bank of New York Mellon, one of the largest trustees that administer mortgage securities, says the responsibility to modify loans “falls squarely to the servicer.”
And the contracts that servicers often blame are usually not a roadblock. A report by John Hunt, a law professor at the University of California, Davis, looked at contracts [6] (PDF) that covered three-quarters of the subprime loans securitized in 2006 and found that only 8 percent prohibited modifications outright. Almost two-thirds of the contracts explicitly gave servicers the authority to make modifications, particularly for homeowners who had defaulted or would likely default soon. The rest of the contracts did not address modifications.
Jeffrey Gentes, an attorney at the Connecticut Fair Housing Center who works with hundreds of homeowners across the state, estimates that in 80 percent of the cases in which he has seen the servicing contracts, no language prevents modifications as the servicers have claimed.
Homeowners’ advocates say that when they successfully disprove a contractual restriction, the servicer just gives another reason for denying the modification. “The investor is cited first until the borrower can prove it otherwise,” says Kevin Stein, associate director of the California Reinvestment Coalition, which helps low-income people and minority groups get access to financial services.
Sant, the Staten Island attorney, says a servicer told one client that the contract with investors forbade extending the length of the mortgage, one key way monthly payments can be reduced through government’s program. But the government has addressed the objection, ruling that if a servicer can’t extend the length of a mortgage, it can still give a modification and just add a balloon payment to the end of the loan. Sant pushed back on the servicer’s attorney, who dropped that reason for denial and instead said the homeowner had failed the computer model [4] that determines eligibility. Sant currently is reviewing the case to determine how to proceed.
Read the rest of the article at www.propublica.org.