Consumer Law

Why Mortgage Servicers Love Foreclosures - They Make More Money!

By M. Stan Herring

Here's a great quote from the Federal Reserve that sums it all up:

?The rules by which servicers are reimbursed for expenses may provide a perverse incentive to foreclose rather than modify,? concluded a recent paper published by the Federal Reserve Bank of Boston.

A New York Times article lays out more details:

Mortgage companies, some of which are affiliated with the nation?s largest banks, are paid to manage pools of loans owned by investors. The companies typically collect a percentage of the value of the loans they service. They extract their share regardless of whether borrowers are current on their payments. Indeed, their percentage often increases on delinquent loans.

Legal experts say the opportunities for additional revenue in delinquency are considerable, confronting mortgage companies with a conflict between their own financial interest in collecting fees and their responsibility to recoup money for investors who own most mortgages.

Of course, the banks deny they would ever do anything improper. Recent conduct proves this point - or does it disprove it? We'll leave it to the kind reader to determine this yourself. Here is the claim by the banks:

Bank of America disputed that characterization. ?To think that somehow or other we would jeopardize investor relationships and customer relationships for the very small incremental income we would receive by delaying seems ludicrous,? said Robert V. James, the bank?s senior vice president for mortgage operations and insurance. ?It?s not the right thing to do.?

Great to see that Bank of America is guided by "the right thing to do" - this will be comforting to many people.....

This helps answer that question of why do mortgage companies not care if my home goes into foreclosure and is sold for less than the loan - because the mortgage companies generally don't own the debt so they don't care - all they care about are their junk fees and bogus expenses they can charge.

If you live in Alabama and would like to discuss your experience with mortgage companies or if you are or have faced foreclosure, feel free to let us know and we'll be glad to meet with you to discuss your legal options.

Full post as published by Alabama Consumer Blog on November 29, 2009 (boomark / email).