Bad Loan Fees Too Juicy to Give Homeowners a Break

By Rob Quinn,  Newser Staff
Posted Jul 30, 2009 4:56 AM CDT
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)
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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.”