The restrictions are designed to protect investors against improper tampering of the cash flow generated. But in times of greater distress, investors prefer modifications that let them continue earning a return rather than having the property be foreclosed, a costly process.
Much of the restructuring will start occurring once investors sell off or write-down the value of the loans to account for a decrease in home prices and the delinquent status of the loans, said Stan Ross, chairman of the board of the Lusk Center for Real Estate at the University of Southern California. Some borrowers may find they can stay in their homes if the value of the home is written down enough.
But housing counselors and lawyers who have worked on behalf of borrowers say their experience suggests that is not happening, yet. Servicers are often unwilling or unable to make big enough changes to account for inflated appraisals and incomes that were used to underwrite loans.