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SUNDAY, NOVEMBER 22, 2009
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4

Bad Loan Fees Too Juicy to Give Homeowners a Break

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(Newser) – The government's foreclosure prevention program is failing largely because of mortgage companies who can make more money when loans go delinquent, industry insiders tell the New York Times. Companies servicing mortgage loans charge many lucrative fees as loans go bad—recoverable, if necessary, out of the proceeds when the foreclosed home is sold. That gives institutions little financial incentive to give homeowners a break and make the loan modifications central to the program.

"It frustrates me when I see the government looking to the servicer for the solution, because it will never ever happen,” says a Florida lawyer. “I don’t think they’re motivated to do modifications at all. They keep hitting the loan all the way through for junk fees. It’s a license to do whatever they want.”

A woman who says KB Home coerced her family into taking a bad mortgage, then refused to negotiate when the loan went into foreclosure, joins protesters outside the firm's LA headquarters.
A woman who says KB Home coerced her family into taking a bad mortgage, then refused to negotiate when the loan went into foreclosure, joins protesters outside the firm's LA headquarters.   (AP Photo/Reed Saxon)
Mortgage servicing companies make big profits from foreclosures, experts say, even when homes are left to rot for long periods.
Mortgage servicing companies make big profits from foreclosures, experts say, even when homes are left to rot for long periods.   (AP Photo/Tony Dejak)
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The rules by which servicers are reimbursed for expenses may provide a perverse incentive to foreclose rather than modify. - A research paper published by
the Federal Reserve Bank of Boston

For many subprime servicers, late fees alone constitute a significant fraction of their total income and profit.
- Diane E. Thompson, a lawyer for the National Consumer Law Center

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4 comments
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cumbucodon
Jul 30, 09 5:23 AM CDT
If this isn't a cry for more govt. regulation, nothing is. Reply
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+3
Thinker
Jul 30, 09 6:44 AM CDT
This is EXACTLY what is happening with student loans. When a student defaults, the lender is able to add 25% to the loan amount. Why would a lender help a borrower avoid default and make payments when they can realize a 25% pure profit on the loan? Add that to the fees and penalties, and you have a lender with no motivation to help anyone avoid default. And without consumer bankruptcy protection for the borrowers, these lenders often give money to seriously underqualified borrowers. Genius! Reply
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+1
TerrifiedCitizen
Jul 30, 09 1:31 PM CDT
The loopholes for the $ industry to make money were created by government incompetent intervention and its proclivity for graft from special interests. I'm not saying something doesn't need to be done, but it can't really happen when the fox guards the hen house. Reply
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radnip
Aug 2, 09 1:25 AM CDT
And who're all the people who keep wanting the capitalist corporate-run "healthcare" system we have to continue as is? Reply
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