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Slower-than-expected growth in loan modifications may be tied to complex ownership of the loans that are collateral for bonds owned by investors with competing interests, analysts said.
Many bond contracts stipulate no more than 5 percent of a pool can be modified, forcing servicers to negotiate with investors to show a new loan leaves them better off than a foreclosure.
“Despite the language in the bill … encouraging Treasury and different government agencies to pursue loan modifications, it doesn’t mean that it just automatically happens,” Brian Gardner, senior Washington policy analyst at Keefe, Bruyette & Woods in New York, said on a conference call with reporters.
It will be an “implementation” issue for the next U.S. president, with a Democratic administration likely being more forceful, he said
