Foreclosures Are More Profitable Than Loan Modifications, According To New Report

Mortgage companies are more likely to foreclose on homeowners than modify their loans because they make more money off foreclosures, argues a new report by a consumer advocacy group.

While homeowners, lenders and investors typically lose money on a foreclosure, mortgage servicers do not, says report author Diane E. Thompson, of counsel at the National Consumer Law Center. Servicers are the companies that manage the mortgages and collect payments.

"Servicers may even make money on a foreclosure," she writes. "And, usually, a loan modification will cost the servicer something. A servicer deciding between a foreclosure and a loan modification faces the prospect of near certain loss if the loan is modified and no penalty, but potential profit, if the home is foreclosed."

Thompson attributes this to a system of perverse incentives created by lawmakers and rulemakers in the market, like credit rating agencies and bond issuers. The private rulemakers typically dictate how a servicer can account for potential losses and profits. They hold enormous sway over securitized mortgages, which are owned by investors. More than two-thirds of mortgages issued since 2005 have been securitized, notes the report, using data from the industry publication Inside Mortgage Finance.

In those cases, the servicer is empowered to handle virtually all aspects of the mortgage, from collecting the monthly payments to initiating foreclosure proceedings. While they're obligated to do what's best for the ultimate owners of the mortgage -- the investors -- servicers have some latitude in deciding what course of action to pursue, be it a foreclosure or loan modification.

When a homeowner is delinquent on a mortgage that's been securitized, the servicer must front the late payment to the investors. When a home is foreclosed, the servicer is typically first in line to recoup losses. But if a mortgage is modified, the servicer typically loses money that isn't necessarily recoverable.

"Servicers lose no money from foreclosures because they recover all of their expenses when a loan is foreclosed, before any of the investors get paid. The rules for recovery of expenses in a modification are much less clear and somewhat less generous," she said.

That's part of the reason why the Obama administration created a $75 billion program to limit foreclosures. The money is to be distributed to servicers who successfully modify home loans, with the hope that the incentives to modify outweigh the incentives to foreclose.

Thompson's report outlines eight specific steps to reverse this trend. They include mandating that servicers attempt to modify a loan before initiating foreclosure proceedings and reforming bankruptcy laws so judges can modify distressed mortgages.

Read the full report:

NCLC Report on Mortgage Servicers -

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Comments

[canyonrat]

11:44 PM on 12/03/2009

Chase takes loan modification payments on the false pretense that loan modification will be permanent. Chase Forecloses Without Warning, Without Notice
LA Times, Business Section: lenders get $1,000 up front for every permanent loan modification, $1,000 for 3 years. What a joke!!!
LA Times, Tuesday, Dec. 1st. New Rules Serve Notice!
What rules? They're going to take "aggressive" action, summons executives to “prod” them, fines “could” be imposed???
The Administration sure has the lenders shaking in their boots now!!!
In the mean time, no one, no one is talking about lenders foreclosing without notice, without warning.
Loan modifications will never be permanent. They want to foreclose!!
The majority of loan mods were not modified, borrowers are making the same payments.
And what does the administration do? They are going to "Shame" lenders into doing the right thing. Excuse me!!!
Quoting Diane Thompson, 'Shaming people into doing the right thing is very slow, and a lot of people will lose their homes in the meantime.'
I have posted how Chase auctioned and foreclosed my daughters home, no warning, no notice.
Today, Dec. 3rd
Carla Brantley, Executive Loan Resolution Dept. called my daughter on Tuesday (the 1st) said their attorney would call First Newport Properties or their attorney and stop the eviction.
Tues, Chase requested a conference with my daughter, Loss Mitigation, Executive Resolution Dept, Carla postponed the meeting.
I called Carla Thursday, December 03, 2009, asking for status, did they stop the eviction?
She has not returned my call.

[Alessandro Machi]

09:52 PM on 12/31/2009

It would be nice to know what has happened since. Feel free to post your story in the comments section of http://www.parallelforeclosure.com

[Alessandro Machi]

03:19 AM on 12/02/2009

I have been researching the idea of banks profiting more from foreclosing than re-modifying loans for months. I have brought up this premise a few times in print in the past several months.

In the meantime, 10,000 homes are foreclosed upon each and every day in this country. The practice of Parallel Foreclosure must be immediately scrutinized and altered.

[canyonrat]

02:44 AM on 12/03/2009

Researching?? Come on? Chase paid 1.9 Bil for WaMu.. In the mix they have 90 bil of real, real mortgage loans. that amounts to no more than 2 cents on the dollar.

Now what would you do, loan mod or foreclose? There is no money in foreclosures, it's a joke. The lender makes too much money in late fees, interest.not to mention the insurance. Most lenders
own or have a monetary interest in the servicing companies. They make money there. The loan mod payments only add insult to injury to the borrower. It's chum change to the lenders.
The lenders have no intentions to make the loan permanent.

What is literally amazing to me, is how Congress, the President and the good people here at the Huffington Post do talk see this as an issue. Why is that? Chase takes 25 billion in tarp money (our money then denies over 98% of loan modifications.

Oh yes.. the latest , out of the 1.7% loan that were made permanent, something like

And so far know one can figure out the reason??? I am astonished and appalled!!!!

[Alessandro Machi]

10:03 AM on 12/03/2009

I've been ridiculed in the past for suggesting the profits before loan mod paradigm. The banks have 80% insurance on most homes if the mortgage fails, add in all the late payment penalties and additional fees and there is not much motivation to help.

Does anybody really think the banks would have gotten such a sweetheart bailout deal if Hillary Clinton had been president? Hillary Clinton seemed very aware of the home mortgage crisis and seemed intent on doing something about it.

Meanwhile, Barack Obama has managed to retain community activists and wall street bankers on his side, two groups that diametrically oppose each other.

Of the three final candidates, McCain, Clinton, and Obama, which two were the most in the pocket of the banksters? Which two were our final choices? The same answer applies to both.

[canyonrat]

12:35 AM on 12/01/2009

Chase Stole Home From Single Mom On The Obama Plan - Parallel Foreclosures

Chase pursues parallel foreclosures the moment a homeowner falls behind on their home mortgage payments or asks for a home loan modification. Banks know there is no oversight or precedent for the number of homeowners in trouble, so they make up their own rules and do whatever they want.

On Oct 27th my daughter mailed her 5th loan modification payment to Chase.

On Friday, Nov. 13th without any notice or warning, Chase foreclosed and auctioned her home.
She found out that evening, neighbors told her people were looking at her home, they said is was to be auctioned that day.

She followed Chase's instructions, payed what was asked. As far as she knew everything was fine. There was never any indication Chase would foreclose.

She received a 3-day notice to quit dated 11/13 notice didn't reach her until 11/18. She is also being sued with an Unlawful Detainer.

We have contacted the CEO of Chase, Jamie Dimon several time, asking to rescind the sale. It's been two weeks, they keep saying, their working on it, what is taking so long?

Chase makes more money selling the loans. Modification is not mandated. Congress didn't of the guts for it!!!

Right now my daughter’s (and her two children ages 6 and 8) future is in the hands of a judge and Chase.

Clearly, something is very wrong with this picture?? Don’t you think?

[e-mail]

[4closureFraud]

10:56 PM on 10/23/2009

During the housing boom, lenders passed around mortgages as if they were whiskey bottles at a frat party. Notes were lost, destroyed, sold into multiple pools. Mortgages were not recorded and exorbitant fees were collected by the big firms on Wall Street.

Now that the bubble has burst, “lenders” are trying to collect on loans they do not own, in most cases never lent a dime on the transaction, have no right to, or were paid 30 times over in bailouts, insurance, credit default swaps, etc.

They are doing this because they can. They are steamrolling the courts rocket dockets because hardly anyone is contesting their foreclosures. Think about it. If you could go into a court and file thousands of foreclosures a week, and only a mere 10% challenged the authority of the foreclosing entity, what would you do if you were the greedy bankster?

The crises is even worse in non judicial states...

In almost every case these pretender lenders do not and did not own the loan. Almost all loans during the boom were securitized and it was investors that put up the money. Not the banks.

Now these "pretender lenders" along with MERS are trying to steal the homes by filing fraudulent assignments, by the thousands, to process the foreclosures.

Don't believe me? See for you yourself.

http://4closurefraud.wordpress.com/

4closureFraud

[sue805]

10:20 PM on 10/22/2009

My mortgage was sold as soon as it was signed to Countrywide. They mis-applied some payments while they were in turmoil and eventually bought by BofA. They sold the mortgage to Quantum. Quantum claimed to be looking in to the lost payments, took almost $20K in payments and applied much of it to miscellansous fees and then sold the loan w/o fixing the lost payment problem. The new mortgage company- Kondaur Capital immediately tried to foreclose, even though they knew of the lost payment issues. $5K in attorney's fees and the State Attorney General involvement later, they finally came to an agreement with the property owner. The homeowner sent $20K to cover payments that Kondaur had originally refused to accept (in an attempt to make the mortgage look delinquent). After accepting the funds, Kondaur sold the mortgage, but did not forward the agreement to the new loan owner. The new loan owner started all over demanding the money that represented the loast payments and fees associated with those lost payments. The loan holders are commiting fraud and this needs to stop! Where are the lawmakers to prevent these companies from shafting citizens?

[Gabriella Cranshaw]

02:53 PM on 10/23/2009

All of the comments are all too familiar. It appears that the mortgage companies have a black hole in which paperwork is consistently lost. You can rarely speak with the same person twice once you do get someone "live" on the phone. It's another instance of raping the public.
As for jobs.... That is another sad case. The pay rate on jobs that are available are generally insufficient to meet the bills. The positions which we are qualified for have too many applicants. Some interviewers either do not call you back, ever. Others are thought to have read your resume. You re-iterate your qualifications at the interview; yet, they ask you if you can do the job!! Hello! Do they read or listen from the get go? My girlfriend asked me if I was interviewing with Congress. Had to laugh. Apparently she is getting same response from her Congressman's office.
"CHANGES" definately should come, for the people; forget corporate bailouts, they aren't helping.

[Alessandro Machi]

10:09 AM on 12/03/2009

Still nobody points a finger at Barack Obama for this mess. Barack Obama promised ON VALENTINES DAY 2009, which was over NINE MONTHS AGO, or almost 3 million foreclosed homes ago, to help.

[Uptrodden]

08:05 PM on 10/22/2009

I have been re-submitting paperwork over and over again to Chase/WaMu for the loan modifcation program. I recently fedex-ed a list a few items that I quess timed out and needed newer bank statements & pay stubs information requested by them via check-list, so I next day'd this to them. This was about 3-4 weeks ago now. I started this process about 3-4 months ago and have re-faxed and re-sent the same documents at thier request about 5 or 6 times now. I am still working but making less due to the bad state of the economy. I sell high ticket retail consumer products. I have equity in my house (I think this is why the want me to default). I have not yet been late on a payment but things have been tense and I am by no means out of the woods. I just need a little help on my mortgage to get through this downturn. I thought this program was for people whose income dropped due to the economy in the first place but I am not hopeful that the banks are doing anything to really help anyone other than themselves, of course.
I say get the TARP money back if they're not getting it to the people that need it. After all it was thier negligence and criminality that started this recession [depression] to begin with.

[IDIOTA]

11:22 AM on 10/22/2009

I have a friend who has been trying to refinance since February when she lost her job. She has never been late or missed a payment in almost a decade Chase lost her paperwork three times. She has the proof that she faxed and mailed the documents. They keep delaying; it must be lucrative for them to do so.

This is fvcked-up behavior.

[GrandMaSassy]

10:53 PM on 10/21/2009

I have said all along the modification program is a Big Failure. Now, I get what these crooks are up to.
I am in a situation where a modification was denied"because of missing paperwork" (It wasn't missing. Anyway months later I have struggled to bring the mortgage current within a few hundred dollars. Now, all of a sudden they don't send me statements anymore. I have this horrible feeling that I am going to have to find an attorney on top of everything else. I don't trust them to not try to foreclose on my home owning a few hundred dollars. I alway's said that my house has equity (even in this market) I think they would rather try to take my home. If this happens I will fight them in a Court of Law.
This is Wells Fargo.

[kingbuzz]

11:30 AM on 10/22/2009

sue them for loaning y0u money that did not exist, ir produce a deed.

[RISwampyankee]

10:03 PM on 10/21/2009

So, why aren't we in the streets with torches and pitchforks?

[kalliste]

12:31 AM on 10/22/2009

i believe it is because most of us are still in shock - i think our country was first in denial and now in such a state of disarray of what to DO with this national disaster that it's like the deer-in-headlights syndrome.

personally, that was where i came from anyways. i felt for so long, "this cannot be happening to me", that i failed to act promptly. then when i was forced to act, i was faced with so many barricades to actually modifying my loan - so much confusion on HOW to modify my loan - so many questions answered differently EVERY SINGLE TIME - so much lost paperwork and bureaucracy that i was too overwhelmed by my own myopic dilemma. i'm too busy struggling to be effectual in my own private housing crisis, much less to take it on at a national level.

i feel immense frustration and anger that a smart, confident woman such as myself is intimidated by this pseudo-process and not yet prone to violence. i hear you, though. where is the revolution?

[Alessandro Machi]

09:51 PM on 12/31/2009

Because the United States has a relatively solid infrastructure and most people still don't want to lose their place in line.

[blogisti]

09:04 PM on 10/21/2009

This is America all right. But it's their America, run for and by, Banksters. It is not your America any more they own it. Obama obviously carries their water. They got the Tarp. They got free access to the Fed money machine. They got the 'stay out of jail' free pass. They got to keep their jobs and their money. They have lobbyists, you don't. It is their America. They will do what is best for them. All this should be obvious by now. Get used to it.

[atienne]

09:03 PM on 10/21/2009

Wemustspeakout...Love the name! Perhaps if Wolves spent some time among those who've worked hard their whole lives and have had the rug pulled beneath their feet, maybe he'd be knocked upside the head with that reality...or maybe not.

[Okieborn]

08:37 PM on 10/21/2009

You know where this story is going don't you folks !!
I see more forclosures down the pike and thusly more Americans losing their homes !!
And the beat goes on !!!

[st0ked]

08:17 PM on 10/21/2009

By now , the truth has become too obvious to deny : The big boys manipulated every aspect of the entire fiasco . It went like this : Inflate the value of homes , ease up on qualification standards and relentlessly entice the unsuspecting into borrowing against the equity that magically appeared . Once that was successful , pull the rug out from under the whole card game , forcing people to lose the homes they used to be able to afford , until they lost an income or saw a huge income deficit due to various things initiated by fear of the future of the economy tanking . Fleecing people of their homes , their jobs , futures and sometimes families . A nation of debt slaves created over a long term effort . Foreclosed homes plus the real money paid toward the inflated values , lost as well . At least to the borrower : the lenders made out very well . They got the bailout , the homes and the apparent power to do whatever they feel like doing to the working people , the now "debtor class" , the ones who pay for the wars with their taxes , children , and what they believe to be patriotism .

[dfranz]

07:47 PM on 10/21/2009

The moral of this story is don't go to banks expecting some compassion or appreciation for being a long time customer

Go to a bank expecting them to treat you like a chump and maybe you'll get a toaster for setting up a savings account so they can use your money to make more money.

[StephJH]

07:46 PM on 10/21/2009

Yes. It's called the "poverty industry". Banks, insurance companies, credit card companies all making money on the backs of our most needy citizens. Banks foreclose on homes (mortgages), turn around sell the homes again making money again in a never ending loop.