In June I talked about why lenders don’t do more short sales. So, it should come as no surprise the lenders are facing increased pressure from the investors who bought the packaged loans to hold the line on modifications. They are pressing the servicing companies to only modify the loan when it looks like there is a real chance of the borrower recovering. Otherwise, they want a speedy foreclosure in an attempt to limit the overall losses before the asset drops in value.

As defaults on home loans mount, mortgage companies are scrambling to work out deals to help as many borrowers as possible stay in their houses.

On the surface, it seems an obvious tactic. Lenders usually end up losing money on foreclosed homes because of legal and other costs and the need to sell those properties fast, often at a knockdown price. Also, politicians are pressing mortgage companies to minimize the damages foreclosures cause to families and neighborhoods.

Still, the effort to hold down foreclosures threatens to create clashes between mortgage companies and investors in securities backed by bundles of home loans, a $6 trillion market that has been shaken recently by losses on some of the riskier types of mortgage bonds. And because of the way these securities are sold, these efforts can pit groups of holders against each other.

“It’s going to create a class warfare” among different types of investors, predicts Kyle Bass, managing partner of Hayman Capital Partners LP, a Dallas hedge fund.

Read more on the RealEstate Journal