Wednesday, October 21, 2009

Forclosures Are More Profitable Thank 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.

Source: The Huffington Post

*************************************************************************************

New Listing: 44 Strawberry Hill Ave - Stamford, CT - MLS # 98440145

Elegant sophisticated remodeled spacious 2Beds/2Baths unit with modern just painted tasteful colors, gorgeous brand new hardwood floors throughout, gourmet kitchen with granite countertops, stainless-steal almost new appliances, new cabinets, and marble floors. This unit also offers several very large closets and lots of storage space. You can also enjoy almost never ending city views, from a screened in porch overlooking south. This great complex also offers a 24/7 concierge service, a garage space (plus extra outside spaces available for a fee), more storage in basement, in-building laundry. The common fees include central air, heating and hot water. It is located within walking distance of (or near) several shops, grocery stores, mall, restaurants, train station, parks, hospital, health clubs, public transportation, and so much more.

No comments:

Post a Comment