Servicers claim to be intimidated by the threat of legal action by Investors even though the “Helping Families Save their Homes Act of 2009” protect servicers, against such actions when they modify a home loan pursuant to the Federal Guidelines.
Servicers make more money on foreclosures than on mortgage modifications. They collect more fees on a foreclosure and they don’t need to hire more staff. So the servicers are not that motivated to modify home loans.
A recent report titled “Why Servicers Foreclose, When They Should Modify and Other Puzzles of Servicer Behavior states “And it’s pretty clear that servicers are more certain to recover their money and thereby make a profit better, if they foreclose, than if they modify.”
The paperwork requirements for loan modifications are a problem. It takes 45 pages of home owner paperwork to document a loan modification request. Then the bank sometimes loses the papers.
The process is not at all transparent. The servicer does not have to disclose their reason for turning down a loan modification, their assumptions or the result of their Net Present Value test. The NPV test is required for a loan modification.
Banks own about 20% of the $11 Trillion in home mortgages. $7 Trillion or 65% of all home loans are guaranteed by FNMA, GNMA, and FHLMC. The Federal Government has a strong moral obligation to support the agencies. So the Federal Government is very motivated to keep home loan losses at a minimum.
Investors in home loans are usually against the modification of home loans.
Investors in home loans are concerned that a loan modification will 1) jeopardize their claims against the originators, often also the servicer, of the loan or 2) delay their action against the loan guarantors.
The beat goes on and on. More mortgages are 90 days or more past due. Lenders are not filing foreclosure suits at the pace the past due loans are piling up. The government pushes loan modifications while servicers resist performing loan modifications.
GNMA, FHLMC, FNMA, Investors and homeowners seem to have the most to lose while the Investors and the Servicers sue each other while the government dithers.
