The Mortgage Mess Just Keeps Getting Uglier

Foreclosure freezes. Doubts about true sales. Fraudulent, flawed mortgage pools.

Bank owned home
Bank owned home

And now this news from Asset Backed Alert:

Mortgage-bond buyers are losing faith in the accuracy of remittance reports, and some say the apprehension could soon factor into their investment strategies.

Remittance reports, distributed monthly by securitization trustees, are supposed to provide routine snapshots of the cashflow-collection and distribution activities of servicers. However, investors say there has been a rash of recent instances in which the reported data differed considerably from what actually happened — making it impossible to determine values for their holdings.

Why have the once-reliable reports been wrong? Investors point in part to increasing use this year of mortgage-modification programs that government agencies and lenders have implemented to aid troubled borrowers. They claim some servicers fail to verify when the changes take effect, resulting in mismatches between when a given loan's cashflows actually shift and when those adjustments are reported.

Servicers argue the volume of recent modifications has become overwhelming in comparison to their staffing levels. They also have faced ongoing struggles in figuring out how to treat loans that are in the trial phases of modification programs. "It has made it nearly impossible for us to appropriately account for changes," one servicing professional said.

Got that? The mortgage servicers aren’t even sure about how much money they are taking in or paying out to investors.

(Hat tip: Felix Salmon)

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