“It’s perfect deniability”

From the Boston Globe:

Tangle of loans feeds foreclosure crisis

Each month, Stephen and Kim Martinelli sent their mortgage payment to Chase Home Finance, and when they fell behind, it was Chase that launched foreclosure proceedings, with an auction of their Lawrence home scheduled for later this week.

The Martinellis, squeezed by the cost of caring for a disabled son and carrying an adjustable-rate mortgage that boosted their monthly payments by $900 over the past year, pleaded with Chase for a break: for a new payment plan, a lower, more affordable rate, or a delay in the foreclosure, due to hardship.

Chase’s answer: “No.”

What the Martinellis did not know was that Chase was not calling the shots. Chase merely services the loan, acting as bill collector and administrator.

The mortgage was held by an unknown investor, whom Chase declined to identify and who refused to modify the terms of the Martinellis’ loan.

They are among thousands of delinquent borrowers caught in the maze of modern mortgage financing as they desperately try to save their homes. 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.

In a rising real estate market, the system worked well, spreading loan risks among various players and expanding credit and homeownership.

But as foreclosures mount, the system is proving ill-suited to respond, analysts said. The reason: Spreading risk muddled responsibility.

“It’s perfect deniability,” said Patricia McCoy, a University of Connecticut law professor who specializes in financial services. “When there’s a problem, each person in line says, ‘Don’t talk to me, talk to the other person.’ “

This entry was posted in National Real Estate, Risky Lending. Bookmark the permalink.

2 Responses to “It’s perfect deniability”

  1. HOUSE OF PAIN says:

    Jim Cramer now tells Americans to default on their mortgages and rent. Seriously, it’s getting that bad.

    re: http://housingpanic.blogspot.com/

    Jim “Walk Away From Your House” Cramer followed up on yesterday’s shock video, and is now telling people who “made a bet and lost” to not compound the error, and to simply walk away from the mortgage and default.

  2. jcer says:

    Cramer is a moron! You should never default unless you are bankrupt! Sell, yes, default no. Because until the bank gets their money you pay a default interest rate which is higher. Unless you go bankrupt it will follow you and crush you. Add that to the damage it does to your credit, unless your property is owned by an LLC that is bad advice.

Comments are closed.