The Truth About Why More People Aren’t Getting Loan Modifications

Finally, people are starting to tell the truth about why lenders aren’t doing more to help homeowners. In a previous blog post, I mentioned that it was more profitable to foreclose on a home than to work out an agreement with the homeowner.

Yesterday the Obama administration held a meeting with mortgage industry executives, telling them they need to do more to help homeowners stay in their homes. The administration told them to hire more people, expand their call centers and work harder to help homeowners.

The problem lies with servicers of loans. Most people don’t realize this, but when you buy a loan product, there are two parts: the servicing rights, or the company who collects the payments on the loan, and the actual owner of the loan. Given that many mortgages are in securitized mortgage pools, there may not be an actual owner of your note, but many investors who own a part of the mortgage pool.

Servicers receive lucrative fees for collecting your payments, handling your paperwork and tracking your payments. Apparently, they too have an incentive to avoid working out problems with borrowers: higher fees.

A New York Times article written by Peter Goodman, published yesterday, says:

“Even when borrowers stop paying, mortgage companies that service the loans collect fees out of the proceeds when homes are ultimately sold in foreclosure. So the longer borrowers remain delinquent, the greater the opportunities for these mortgage companies to extract revenue — fees for insurance, appraisals, title searches and legal services.”

The Federal Reserve Bank of Boston recently published a paper that said the way in which loan servicers are reimbursed for expenses provides a perverse incentive to foreclose rather than modify.

It works like this: the closer your home gets to foreclosure, the servicers have to pay for services required to take control of the property, such as title searches, insurance policies, appraisals and lawyers to companies they own or share revenue with.

This isn’t a new way for lenders to make money. If you received a Countrywide loan, chances are you paid their credit company for your credit report, their title company for escrow and their appraisers for your appraisal. Most people don’t realize this happened because it wasn’t disclosed in your closing paperwork.

The NYT article says that Ocwen, a loan servicer (who happens to have the WORST record of customer service in the US) started its own title company to keep more of the revenue from foreclosures.

So how do they make money from the foreclosure of your home?

The title company gets paid when the home is transferred to the servicer during the foreclosure.

When the home sells, that same title company again charges fees to the new buyer. In addition, that same title company sells the buyer title insurance.

I think it’s interesting how the lenders are screwing not only the homeowners, but their own investors. The NYT article says that the investors “accept whatever is left. Investors typically don’t notice how much money they give up to the servicers, because fees are embedded in the complex sales.”

Apparently homeowners aren’t the only people screwed by the lenders with undisclosed fees and hidden charges. The lenders also lied to the people they sold their toxic assets to. I’m less sympathetic to those investors than I am to homeowners but they were taken advantage of too.

It’s clear to me that we have a BIG problem on our hands in this country, and this NYT article just confirms it.

The banks profited by writing bad loans, they profit when you fall behind on your mortgage because they have NO INCENTIVE to modify your loan, then profit when they foreclose on your home and they profit again when they sell it to the next buyer.

At risk of sounding like a conspiracy theorist here, the real estate boom and bust has been a big profiteering scheme perpetrated on United States citizens by the largest banks, and we are all to blame for not paying attention to what’s happening.

WAKE UP AMERICANS! We have been asleep at the wheel and our country is headed off the road! There is no more time to wait – we have to take action as individuals.

Fix your mortgage mess  – ForeclosureIndustry.com has plenty resources and information to help you help yourself. Get a loan audit and force your lender to work with you to keep your home if it serves your best interests.

Tell your elected officials you’re mad as hell about the way things are going in this country. I’m counting on you!

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