Showing posts with label loan servicers. Show all posts
Showing posts with label loan servicers. Show all posts

Wednesday, October 21, 2009

Loan Servicers Prefer Foreclosure Over Loan Modifications

Loan Servicers Prefer Foreclosure Over Loan Modifications
According to this National Consumer Law Center (NCLC) report, Why Servicers Foreclose When They Should Modify and Other Puzzles of Servicer Behavior, and the press release, AVOIDABLE FORECLOSURES CONTINUE DESPITE SERVICERS' "LOAN MODIFICATIONS", announcing the report, "(loan) servicers, unlike investors or homeowners, generally don’t risk losing money on foreclosures. In fact, servicers usually make money on foreclosures." That is a major reason why loan servicers reject loan modifications and delay or reject short sales and pursue foreclosure even when it would seem to make sense to avoid foreclosure.
According to the press release Diane E. Thompson, the report author and an attorney with NCLC, said, "The country is in the midst of a foreclosure crisis of unprecedented proportions. Millions of families have lost their homes and millions more are expected to lose their homes in the next few years. With home values plummeting and layoffs common, homeowners are crumbling under the weight of mortgages that were at best only marginally affordable when made. One common sense solution to the foreclosure crisis is to modify the loan terms in more instances. Foreclosures are a costly ordeal for the homeowner, the lender, and the community. Yet they continue to outstrip loan modifications because servicers have no incentive to help borrowers stay in their homes."
The press release describes mortgage loan servicers as "banks or financial companies that usually collect payments and administer mortgage loans. They play a key role in the current foreclosure crisis, since original lenders frequently sell loans to investment trusts that rely on servicers to carry out most day to day transactions. Homeowners seeking to save their homes by modifying unaffordable loans typically deal with servicers. That is why the financial interests of servicers have the potential to hurt homeowners. And too many of those financial incentives encourage servicers to ignore the interests of homeowners. For example, the report found that servicers often deny homeowners principal and interest rate reductions because as servicers they find it profitable to offer repayment plans or forbearance agreements that do little to reduce homeowners’ debt burdens. The consequences of such choices can be grim for homeowners." The NCLC report states "Loan modifications inevitably cost the servicer something. A servicer deciding between a foreclosure and a loan modification faces the prospect of near certain loss if the loan is modified, and no penalty, but potential profit, if the home is foreclosed."
According to the NCLC report, there is no systemic 3rd party oversight of mortgage loan servicers so there is no party that can force a mortgage loan servicer to offer the struggling homeowner a loan modification, or to approve a short sale.
The NCLC recommend the following reforms to try and stop the foreclosure crisis:
  • Avoid irresponsible lending through regulation of loan origination.
  • Mandate loan modifications before a foreclosure.
  • Fund quality mediation programs.
  • Provide for principal reductions on existing loans in the Administration’s Home Affordable Modification Program (HAMP) and through bankruptcy reform.
  • Increase automated and standardized loan modifications for borrowers in default and provide a safety net for borrowers for whom a standardized modification is not affordable or who later default, through no fault of their own, on a loan modification.
  • Ease accounting rules for modifications to facilitate standardized review, encourage long-term modifications, and enhance servicer recovery of the expenses incurred in performing a modification.
  • Require more transparency and uniformity in how servicers report loan modifications to investors
  • Limit fees charged borrowers in default to reasonable and necessary ones
My conclusion is that until reasonable and effective mortgage loan servicer reforms are enacted, there will be more foreclosures and more homeowners will desire short sales after their loan modification requests are rejected.

If you are a homeowner in Middle Tennessee who cannot pay your mortgage payment(s) (i.e. due to losing your job, having your income reduced, illness, health problems, etc.), or your home is already in foreclosure, or you owe more than your home is worth, please contact me to discuss your options including a loan modification or a short sale. I am a Middle Tennessee distressed real estate, short sale, pre-foreclosure (preforeclosure) and foreclosure REALTOR and Expert. I serve real estate owners, homeowners and investment property owners in Rutherford County TN, Williamson County TN, Davidson County TN, Murfreesboro TN, Smyrna TN, La Vergne TN, Eagleville TN, Lascassas TN, Rockvale TN, Christiana TN, Brentwood TN, Franklin TN, Nashville TN and Belle Meade TN. If you do need to short sell your home (a real estate short sale occurs when the sale proceeds are not sufficient to pay off all the mortgages and liens on the property/home), or you need a quick sale due to being in foreclosure, you can request short sale and foreclosure help and assistance on my website at Get Short Sale and Foreclosure Help and Assistance from a Middle Tennessee Short Sale and Foreclosure REALTOR and Real Estate Expert.

Monday, August 3, 2009

Mortgage Servicers Have Incentives Not to Modify Loans, Not to Approve Short Sales and Not to Foreclose (At Least for Quite a While)

According to this New York Times article, Lucrative Fees May Deter Efforts to Alter Loans, mortgage servicers make more money by charging late fees, legal fees, insurance fees, etc. than they would by offering the home owner a loan modification (i.e such as Making Home Affordable), approving a short sale or even foreclosing. Therefore, many homes will sit in limbo for many months even when the current owner is several months behind in their mortgage payments, but could pay a lower payment, or even if there is a buyer willing to buy the home. Apparently, the longer the loan is delinquent the more the mortgage servicer stands to profit. Of course, during this time the home is likely being neglected, which will ultimately result in the home being worth less when it ultimately sells. Since the mortgage servicer does not own the loan they are not losing any money and do not really care. According to the article, in June 2009 nearly 3,000,000 homeowners were 90+ days delinquent on their home loans (up from 1,800,000 in June 2008), but the number of homes taken back by the banks decreased to 245,000 (from 333,000 in June 2008). This goes hand in hand with what I wrote in earlier blog posts, More Evidence Banks Are Holding Back Foreclosures and Government Meddling and Banks' Incompetence Will Cause More Home Price Declines, where I stated that banks are not openly selling anywhere near number of true foreclosures. The number of seriously delinquent loans continues to grow. These loans should be modified or the properties should be sold via short sale or foreclosure. Instead, the mortgage servicers are just letting them fester. Of course, they will eventually have to be dealt with on way or the other. Most likely this will be via foreclosure after the owners just give up and move on.