Mortgage Insanity

“Unlike in the last real estate bust, when local banks and credit unions wrote nearly 80 percent of mortgages in Massachusetts, most home loans issued today pass through a nationwide chain of brokers, lenders, service companies, Wall Street firms, and investors. That makes tracing ownership difficult, if not impossible.”

“Kristen Harol, deputy director of Lawrence Community Works, said her staff can’t even figure out whom to call to negotiate purchases of the foreclosed properties. ‘We can’t get to square one,’ she said. ‘The problem is: Real estate is local, but the money is national.’”

“For example, more than 20 percent of foreclosure actions in Massachusetts in the last year have been initiated on behalf of a unit of Deutsche Bank Group, according to ForeclosuresMass. Deutsche, while listed on the deed as the mortgage holder and technically the legal owner, is a trustee for investors such as hedge funds and other financial firms that hold the securities.”

“A spokesman said Deutsche Bank has no economic interest in the mortgages and is not responsible for foreclosures or for selling foreclosed property. Such decisions are made by servicing companies, the spokesman said.”

“Moreover, mortgage-backed bonds are usually sold with legally binding commitments that create more obstacles for delinquent borrowers. For example, reductions in loan amounts are often needed to keep people from losing homes, but mortgage-backed bonds are usually sold with prohibitions against forgiving loan principal, except in rare cases, said McCoy, the UConn professor.”

“‘Anyone seeking a loan workout is going to have to face these impediments,’ said Patricia McCoy, a University of Connecticut law professor. ‘It’s perfect deniability. When there’s a problem, each person in line says, ‘Don’t talk to me, talk to the other person.’”