Some Home Owners Not Being Helped with Foreclosure

Posted on May 28th, 2008 by saman

If you have a mortgage that you cannot afford and you want to get a new mortgage, the decision on whether or not you get that mortgage will be decided by a mortgage servicer, someone you have never met.

Across the nation as home prices fall and the number of foreclosures increase, there are thousands of homeowners in the U.S. who may lose their homes and are attempting to get new loans. Congress is considering a large rescue effort that is targeted at assisting five hundred thousand homeowners. The efforts to help people retain their homes will be run by servicers of mortgages. They will be responsible for choosing which homeowners will receive the cheaper mortgages.

However these mortgage servicers are being overwhelmed by the foreclosure problem. These servicers were established to process payments. They were not established to work out loans on such a large scale. Because of this, they may not have the incentive financially to help at-risk homeowners get new loans. The mortgage servicers were not set up for this type of restructuring.

Mortgage servicers manage loans and collect payments. There are some organizations such as Wells Fargo and Countrywide that act as lenders also. Still other companies only service loans. Mortgage servicers receive part of the money from mortgage payments and the rest goes to investors.

Mortgage services are the middle men and they do not own the notes.

They do not have the same incentives as those that own the notes.

Those who service mortgages have some financial reasons for not assisting homeowners who get behind on mortgage payments. Since mortgage servicers are middlemen, they are given .25 percent of the principal on the loans they handle. This translates into about two hundred and fifty dollars for every one hundred thousand dollars that is borrowed. This works out to about twenty one dollars per month. If a homeowner happens to get behind in their payments, the late fee by itself may be twenty five dollars if not more. This is over the amount the mortgage servicer will get paid to maintain a loan that is up to date.

Another fact about mortgage servicers if that they retain most of the profits from the fees they receive. A sad fact is that some mortgage servicers have been accused of encouraging borrowers toward delinquency. They may delay checks so they become past due and they can gather additional charges. There has been testimony where it has been stated that over half of foreclosures being studies have servicer fees that are questionable.

Even if loan workouts were more profitable, some mortgage servicers would continue to be very cautious. Some mortgage servicers can only offer certain kinds of loan modifications. This is because of their contracts with the owners of the securities. Securities owners are currently the main owners of mortgages. Mortgage servicers are supposed to act in favor of investors but the way they accomplish this can be fuzzy.

For example, if a loan is written down and go bad this may mean a large return for investors. However, investors may not like this because their investments are decreasing. Mortgage servicers want to avoid any possible lawsuits.