By Karen Weise, ProPublica
This story was co-produced with Marketplace.
Seventy-year-old Barbara Harris can’t help crying when she walks around her neighborhood. She says she hates seeing possessions piled up on front lawns — the remnants of foreclosure. Three times, the Harrises received foreclosure notices and thought they’d be next.
For two years, the Harrises have been trying to get Wells Fargo to modify their mortgage to something they can afford. But they face one big catch: Though Wells Fargo services their mortgage and is participating in the federal modification program, it doesn’t actually own their loan. And the investors that do own the loan, Wells Fargo told the Harrises, won’t allow the modification.
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Like one in eight homeowners, the Harrises’ loan is part of a mortgage-backed security, a bundle of loans packaged together and sold off to investors. Ambiguous rules and the dispersed web of interests involved in securitized mortgages have created little accountability, leaving homeowners trapped. For homeowners with securitized mortgages, once they’re told an investor says no, there is little recourse.
A Problem for the Federal Program
Homeowners with securitized mortgages could be disproportionately denied modifications under the federal Making Home Affordable program. Under the program, participating mortgage companies must modify loans for all qualified borrowers; the only exception is when a contract with investors prohibits the modification.
As ProPublica and other news outlets have reported, the program is off to a slow start. Even Treasury Department officials say the servicers are lagging. In written testimony to Congress on June 3, James Lockhart, the Federal Housing Finance Agency director, singled out securitized mortgages as "especially challenging" hurdles for the program.
Homeowners, housing counselors and legal aid attorneys say that servicers have pointed to agreements with investors as preventing loan modifications. Because the Treasury Department has not released information about the reasons why modifications are being denied, it is impossible to know the full extent of the problem.
This conundrum hits those most in need; homeowners whose loans were securitized by banks are five times more likely to be severely delinquent on payments than other homeowners.
The Harrises provide a good example of how a loan is packaged and resold to investors, and how that makes it difficult to modify their mortgage.
