Mortgage deals can be kept quiet

An interesting and timely piece from Voice of San Diego exploring this thorny question: When a homeowner renegotiates a mortgage to a lower amount -- in effect reducing the price he or she is paying for the house -- should the new loan amount be a matter of public record? Or should workouts be private?

The article reports that mortgage workouts that reduce the amount of the mortgage can be kept secret -- unlike new purchase loans, or refinance loans that increase the total outstanding debt.

“You would think that should be a requirement because all the other ones are public record,” Fred Eckert, a local title representative with Chicago Title, said in the article. “If [a lender] records a modification, you have an accurate picture of what’s happening with that property. If things weren’t recorded, how would you know what’s happening on the street?”

Unless a loan’s balance is increasing, the lender isn’t required to file a public change, the article stated. Because the modification is between a lender and a private consumer on an existing loan, the lender is not legally required to attach news of the modification to the property record, experts said. In some cases, even when the balance is decreasing, lenders do attach a notice that the loan has been modified.

The result, though, is that information is kept out of the market, to the potential disadvantage of future buyers. They might base their offer on the last publicly recorded purchase price, when the lender and the buyer know there is newer information: a lower price they have agreed on to keep the house out of foreclosure.

More, from the article’s author, Kelly Bennett:

“If a prospective buyer could see to what level a handful of homeowners on a certain street had just negotiated their mortgages, that buyer’s psychology could be altered and he might offer less for a nearby home than he would have otherwise.”

-- Peter Viles