Large mortgage lenders such as JPMorgan Chase
In a settlement relating to charges brought by state attorneys general against Countrywide Financial, which B of A acquired in July, the bank agreed to modify as many as 400,000 loans. B of A only owns about 12% of these loans; the rest are owned by mortgage-backed securities investors.
B of A did not consult with the investors in putting together the loan modification program. Instead, it's invoking its "delegated authority" to make the changes. Some investors are claiming that the bank is trying to shift the cost of its settlement onto them, and they're prepared to sue. Loan modifications to avoid foreclosures can benefit investors, but the devil is always in the details.
Unfortunately, even if B of A pushes through its loan modifications, it may only score a Pyrrhic victory.
Loan modifications are no silver bullet
Indeed, the experience of British bank HSBC
Two banks that recently acquired notoriously careless mortgage lenders should be paying close attention to the B of A and HSBC case studies: Wells Fargo
Further foreclosure-free Foolishness:
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Fool contributor Alex Dumortier, CFA has a beneficial interest in Wells Fargo, but not in any of the companies mentioned in this article. JPMorgan Chase and Bank of America are Motley Fool Income Investor selections. The Motley Fool's disclosure policy is glad to be a renter, for once.