Thursday, July 30, 2009

Banks Make More $$ Not Modifying Mortgages

Just when we thought we understood what was going on we find that banks are taking advantage of their investors. Well, they do not call them banksters for nothing. There is a great article titled Mortgage servicers perverse incentives from Reuters Blog that illustrates how lenders make money by not negotiating. This bundle comes from the investors. Let's take a look -

Last month, I wondered whether banks’ seeming inability to effectively modify mortgages was a function of “greed on the part of the banks — that while they pay lip service to the idea of modifying mortgages, they actually make more money by being recalcitrant and obstructive and unhelpful.”

It turns out that the answer is yes, it is — and the NYT’s Peter Goodman has chapter and verse:

Many mortgage companies are reluctant to give strapped homeowners a break because the companies collect lucrative fees on delinquent loans.

Even when borrowers stop paying, mortgage companies that service the loans collect fees out of the proceeds when homes are ultimately sold in foreclosure. So the longer borrowers remain delinquent, the greater the opportunities for these mortgage companies to extract revenue — fees for insurance, appraisals, title searches and legal services.

In a sidebar, Goodman examines the case of a mortgage servicer, Countrywide, which refused to let Alfred Crawford sell his house for $620,000 in settlement of mortgage debts exceeding $800,000. The latest offer on the house is now just $465,000, and still no short-sale is being allowed.

In the meantime, Countrywide is paying itself lots of fees — fees which will ultimately come out of the pockets of the investors who bought the mortgage-backed bonds which Crawford’s loan was bundled into. The minute that Countrywide allows the house to be sold, that fee income dries up.

The claim is that lenders are looking out for investors. But if you read the whole post you will see that the lenders are really just looking out for themselves. That is why short sales do not work out. That is why foreclosures seem to lag on and on. The lenders are able to extract every penny out of the situation as possible. How is the housing plan going to compete with that?

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Anonymous said...

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