A new form of income has been enjoyed by numerous companies for simply approving home sales for less than the owed balance. The U.S. Treasury has been paying $1500 per file. These companies also handle the collection of mortgage payments and requests for assistance.
These companies or servicers would also get $1,000 for each loan modification completion under the government’s modification program and additional stipends over a period of three years if borrowers stay current on their new mortgage payments.
But the problem has become that there will not be enough time nor man power to save the millions of homes where loan payments are in arrears more than 90 days nor do St Louis finance professionals feel there are enough incentives to accomplish this task.
The irony has become quite clear that servicers make more money foreclosing on a person’s home than trying to help them save it.
Diane Swonk, chief economist of Chicago-based Mesirow Financial says that “the incentives being offered by the government are small compared to the counter-incentive of foreclosure.”
She goes on to say: “The service industry has its own set of incentives, and you can’t tell people to do what’s not in their financial best interest, especially in an economy that is still struggling.”
Most consumers see this as an immoral greed factor helped perpetrated by the U.S. Treasury in its nearsighted approach to doing what is knowingly right for these unfortunate homeowners.
How about the servicers’ point of view? The second quarter of 2009 showed that modified consumers has missed at least one loan payment according to a recent report by the Office of the Comptroller of the Currency and the Office of Thrift Supervision.
It gets worse. Approximately twenty-five percent of loan modifications during this same period were actually 90 days or more late.
Some now say that loan modifications do not work while others insist that we need more time to see how this plan unfolds before throwing in the proverbial towel.
Either way, here’s the interesting part of this whole scenario. These servicers may not lose money in a re-default after-all, said Marie McDonnell, owner of Truth in Lending Auditing & Recovery Services in Orleans, Massachusetts.
The fact remains that these servicers will get their money no matter what happens. How? If a person cannot meet the terms of their new modified loan or if the short sale is not approved by HAFA, the property goes into foreclosure and when sold, the servicer gets their new found income.
The truth be told, the majority of servicers prefer loans that are in default since most of them turn into cash cows. So, why are foreclosures more profitable than loan modifications?
These mortgage servicers can now start charging enormous fees for processing and markups for the attorneys and appraisers who are involved in this transaction.
Keep in mind this does not include any and all monthly late fees that can run as high as 5 percent of the mortgage payment.
Take for instance a St Louis foreclosure on a $190,000 home. It may bring in about $9000 or more in income for these servicers who then get paid before the mortgage investors who provided the loan.
The end result could provide up to 10 times the amount of money compared to any government stipends being originally offered to help modify this same home loan.
And to add injury to this insult, servicers do not lose money whereas the mortgage investors in most cases will ultimately take a financial loss. For the servicer, it is nice being first in line to receive payment when the home sells.
This unfortunate situation was only made worse when politicians rejected new legislation designed to allow bankruptcy judges to reduce mortgage balances and interest rates to help such homeowners.
This cram-down provision or what would have been known as ‘judicially modified mortgages’ would have given borrowers better terms and allowed them to avoid foreclosure which is what they wanted in the first place.
Now servicers have all the power they need to decide which loans get modified and which homes go into foreclosure with the final decision usually weighing in the favor of financial prosperity. One has to stop and think was there any real hope for preventing this mortgage crisis from getting worse.
To learn more about a St Louis mortgage, stop by Floyd J. Tapia’s site at http://www.LibertyLendingConsultants.com/StLouisMortgage where you can find real tips about securing a St Louis loan. We also invite you to call us at 314-334-0210.