Mortgage Lenders On The Financial, Mortgage and Credit Crisis

Mortgage lenders that service home loans have their own take on the financial, mortgage and credit crisis and have their own problems also.

Q: I think you should consider the cost incurred in servicing delinquent loans before declaring that lenders profit from servicing them.

Most servicers of mortgage loans must remit payments to the investor in a specified time regardless if the borrower made the payment. Servicers are required by the servicing agreement to treat delinquent mortgages in a specific manner. Certified mailing of notices of default, telephone contact, and drive-by property inspections are just a few of the additional tasks a servicer may be contractually obligated to perform.

Since these attritional tasks require additional personal to accomplish, the servicer incurs additional direct cost in addition to the cost of making the principal and interest payments as well as tax and insurance payments as specified in the servicing agreement.

All in all, servicers would much rather have every borrower pay on time and not be required to take extraordinary measures to collect or foreclose on a borrower.

A: Thank you for your comment. We have received comments like yours in the past, but we still don’t understand why servicers are still understaffed, lose paperwork, and fail to provide customer service to their borrowers that are attempting to refinance or modify their loans with those lenders.

In today’s mail, we received yet another complaint from a homeowner of not being able to get her lender’s designated contact person (a big national bank) to return her call for most of last year, despite having a court order to do so.

It would seem from your comment that servicers must be going broke based on the large number of foreclosures and other problem loans that are out there. However, many servicers are part of large banks that are the same banks reporting large profits over the last couple of years. Those same banks may have received government funds during the height of the financial crisis and are, in many instances, the same institutions that outsourced much of the foreclosure process to companies that have now been found to have had severe problems in the manner in which they process the paperwork in those files.

If you are correct in your assumption that servicers don’t make much money handling their loan files, it would seem that the servicers would be up in arms trying to get rid of their servicing arms or trying to get the investors to pay more for their services. The public has not heard that story from the servicers. Instead, we hear about multi-million dollar settlements with federal officials that acknowledge this sort of behavior and how well the banks seem to be doing.

There is a disconnect with the manner in which you relate how servicers work within their industry and the information that seems to come out from those same institutions.

Yes, everybody would be better off if all borrowers made their payments on time, but the financial disaster that occurred during the last decade has eliminated that possibility for millions of Americans. So the question now is will the servicers come to the plate and actually work with their borrowers to get their loans modified or refinanced?

Some mortgage and loan servicers are better than others. In a free market, borrowers would try to fire their servicers and have better servicers handle their loans. Or, if the investors had their say, wouldn’t the investors fire those same servicers if they were handling the servicing of their loans poorly?

We’re kind of skeptical about the information provided by mortgage and loan servicers these days. On the one side those same institutions show that they are profitable, yet on the other hand it almost seems from your letter that those same servicers are between a rock and a hard place between defaulting borrowers and investors looking for their proceeds from the loans they hold.

We welcome information from the servicers on where things actually stand almost four years after the crash.


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