Comments on: Investor Sues to Block Mortgage Modifications

By: BawldGuy

BawldGuy — Wed, 03 Dec 2008 02:13:09 +0000

Tom — The people who bought it, certainly CAN change the terms with the direct agreement of the borrower. It’s the lender who sold it to the investor who can’t “agree” with the borrower on new terms — or at least that’s what the investors are gonna say in court.

The ’service agreement’ allows for modification, as you pointed out in the post. However, the sticking point is whether the investor agrees that modification was a ‘win/win’ – a dubious proposition at best from their viewpoint.

By: Tom Vanderwell

Tom Vanderwell — Wed, 03 Dec 2008 00:57:12 +0000

Yep, you’ve nailed it. If B of A can unilaterally rewrite contracts for the “political” good of helping people who might not make it any way, the secondary market is toast…..

I’ve been telling customers for years, that we (the bank) have the right to sell our interest in the mortgage to someone else, but the only thing it does is change the name and address of the place you make the payments. That means that the people who bought it don’t have the right to change anything. That also means that B of A has no right to change it either….

Tom

By: Vance Shutes

Vance Shutes — Tue, 02 Dec 2008 21:38:03 +0000

OK, BawldGuy and Tom – it would seem that the heart of the issue is more the (possible) death of the secondary market, rather than the strict contractual obligations of both parties. Correct?

If I sign a mortgage with BOA to pay $X per month, that’s a contract with BOA – leaving out the servicing. If BOA sells that contract (ie, they sell the value of that cash flow) to someone else (read Fannie and Freddie), the buyer is “banking” on that cash flow to support that investment. There’s no relief in there for me to change my terms – I agreed to the contract. The investor who bought the contract did so with the understanding of the terms of the contract – I would pay. If I don’t pay, the investor will collect their principal and seek other investments. That’s all contract law. If that investor sees the terms of the contract changed by a third party, you’re darn right they have the right to sue! And who could blame them?

By: Tom Vanderwell

Tom Vanderwell — Tue, 02 Dec 2008 21:11:27 +0000

The sticking point is if both parties to the loan contract have been fairly served in the modification.

And did “we” create such a convoluted financial system so that it’s virtually impossible to figure out exactly who ones the individual loans?

That was my point too – it seems that maybe the investors have decided to take their chances?

By: BawldGuy

BawldGuy — Tue, 02 Dec 2008 20:12:24 +0000

Vance — Agree with you, but there’s a fly in your position. The contracts with servicers clearly, (clear as mud that is) state they CAN modify the loan terms. The sticking point is if both parties to the loan contract have been fairly served in the modification.

If payments/interest are reduced it’s kinda hard to argue the investor hasn’t been damaged. Foreclosure worse, you say?

Isn’t that for the investor to decide?

By: BawldGuy

BawldGuy — Tue, 02 Dec 2008 20:09:06 +0000

Aside from all the principals’ rhetoric, what we have here is a failure to achieve a contractual meeting of the mind. The legal concept of ‘mutual agreement’ raises it’s ugly head.

What may be at stake here, is the very foundation of capitalism: Sanctity of contract.

By: Vance Shutes

Vance Shutes — Tue, 02 Dec 2008 19:11:06 +0000

Tom,

Was there something in contract law that I missed? A contract is binding on both parties. So BOA issued a contract which they then have to abide by. Seems rather straightforward to me. I agree with the investors – especially if they don’t prevail – it would be the death of the secondary mortgage market.