SOURCE: Florida Homestead Law Group

Florida Homestead Law Group

March 24, 2011 06:00 ET

Credit Default Swaps Could Impact Homeowners Says Florida Homestead Law Group

Difficulty in Obtaining Loan Modification Is Increased

FORT LAUDERDALE, FL--(Marketwire - March 24, 2011) - Credit default swaps (CDS) are similar to insurance contracts in that they promise to cover losses on certain securities in the event of default. While CDSs are supposed to give homeowners a feeling of protection in return for their premiums, they often do not. This can ultimately affect a homeowner's ability to obtain a Florida loan modification.

Insurance companies and banks are regulated and credit swap markets are not. Due to this difference in markets, CDSs can be traded through several investors without the guarantee that anyone is monitoring the swaps to ensure the buyer can cover the risk of loss if the security defaults.

Commercial banks are amongst the key players in the CDS market. These banks also serve in the capacity as mortgage loan servicers of residential loans, which are charged with the responsibility of collecting, monitoring and reporting loan payments, handling property tax, seeking insurance escrows and late payments, foreclosing on defaulted loans and remitting payments.

"Seldom reported, loan servicers have and will continue to strategically employ CDSs to protect against defaults, usually to the detriment of borrowers seeking loan modifications," Scott Podvin, Lead Attorney for Florida Homestead Law Group said. "As a result, these loan servicers may fail to hear the pleas of homeowners who desperately request loan modifications, even when loss mitigation strategies are economically viable."

All of this makes it challenging for the banks to value the contracts and the securities on their books. If the CDS market turns for the worse, lenders will become even more cautious about giving loans, and this would largely affect homeowners. 

To learn more about the impact CDSs have on loan modifications, visit Florida Homestead Law Group at www.homesteadlegal.comFlorida foreclosure defense attorneys can help explore options available in this situation.

About Florida Homestead Law Group: The Florida Homestead Law Group, based in South Florida, strives to provide client focused interdisciplinary services, resulting in a hands-on legal representation experience for all clients. The attorneys and staff are advocates of financial responsibility and consumer rights. To learn more about how the Florida Homestead Law Group can help you, visit them at www.homesteadlegal.com.

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