You hear a lot of talk about the Making Home Affordable plan pushed through by the Obama administration, but you don’t meet too many people who have had success in getting their mortgage loans adjusted.
Why? It’s not lack of money. This is a $75 billion program designed to prevent foreclosures and give relief to troubled homeowners whose incomes have plummeted in recent months.
The answer lies in conflict of interest. Mortgage companies that service loans are paid $1,000 from the Federal Government when they modify a loan. Then they are paid an additional $1,000 per year for the next three years. Treasury officials believed that these payments would be enough incentive to loan servicers to assure their cooperation, but it isn’t so.
Mortgage loan servicers collect a percentage of the value of every loan they service – year in and year out. Then, when a loan goes into default, they begin collecting fees, beginning with late charges which can equal 6% of the monthly payment. When the loan finally gets to the foreclosure stage, they get to collect even more.
According to a New York Times report, Owen Financial reported that almost 12% of it’s 2007 income came from fees paid by borrowers.
The good news for homeowners struggling to get back on track after missing a few payments is that loan servicers don’t seem to be in a hurry to push those loans as far as foreclosure. The longer they stay on the books, the more dollars keep coming in. Thus, while the number of mortgage loans showing 90 days late nearly doubled from June of 2008 to June of 2009, the number that transferred ownership to a bank declined by almost 1/3.
It seems almost as if the loan servicers are using these delinquent loans as a sort of interest-bearing savings account, because once a mortgage loan does go to foreclosure the revenues become even higher.
Management fees charged to investors for taking control of the property, getting it ready for resale, and handling the sale can be extremely lucrative. In addition, they are able to funnel orders for insurance policies, appraisals, title searches, and legal filings to companies that they own.
Some mortgage servicing companies have established their own Title companies, just because of the huge profits involved. They are allowed to charge for title work when the home is transferred to the lender, then when it is transferred to the new buyer, and finally they are able to sell the Title Insurance to the new buyer.
The Federal Government may want loans modified to help troubled homeowners. The Mortgage Loan Servicers may have a completely different agenda.
Author: Mike Clover
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