Close Close Comment Creative Commons Donate Email Add Email Facebook Instagram Mastodon Facebook Messenger Mobile Nav Menu Podcast Print RSS Search Secure Twitter WhatsApp YouTube

Do Loan Servicers Profit From Not Modifying?

As we noted Monday, there's been plenty of theorizing this week as to why the government's foreclosure prevention program isn't performing up to expectations. This morning's New York Timesthrows one more theory into the mix: The companies that service mortgages reap late fees from delinquent homeowners, giving them an incentive not to modify loans. In other words, the longer borrowers are in delinquency, the better it is for the servicers. And these companies can collect fees through foreclosures, too.

One servicer, Ocwen, protests to the Times that the costs incurred by the company from delinquent loans always amount to more than the late fees. The piece doesn't directly counter this, but it does note that servicers sometimes have subsidiaries (like a title company) that profit from foreclosures. One former Ocwen employee calls this business "hugely profitable" for the company.

The federal program uses a system of incentive payments to servicers and mortgage lenders in order to alter their cost-benefit ratios. Whether these "few shekels from the government,” as one former Bank of America employee in the piece calls it, will be enough to convince servicers to modify loans is still unclear. Perhaps the servicers have just been slow to ramp up, or maybe the whole thing's hopeless. A little more light will be shed on the matter next week, when the government releases data showing how many loans each individual servicer has modified. At least then we'll know if some servicers have been slower than others or if the problems exist across the board.

Other bailout links this morning:
FDIC Poised to Split Banks to Lure Buyers (WSJ)
Frank Threatens Banks to Stop Foreclosures (AP)
Senate Probes Banks for Meltdown Fraud (WSJ)
New Federal Housing Administration Loan Assistance (AP)
Unemployment Spreads Distress in U.S. Home Loans (Reuters)



Latest Stories from ProPublica

Current site Current page