HomeLatest ThreadsGreatest ThreadsForums & GroupsMy SubscriptionsMy Posts
DU Home » Latest Threads » Forums & Groups » Main » Good Reads (Forum) » How Mortgage Servicers Ma...
Introducing Discussionist: A new forum by the creators of DU

Tue Feb 12, 2013, 03:52 PM

How Mortgage Servicers Make Money by Screwing Their Homebuying Customers

The mortgage servicing industry has always been a bit of a black hole. Servicers aren't the folks who make loans, package loans, or invest in loans. Rather, they're the folks who collect payments and handle the routine administrative work after loans have been packaged up and sold off as securities. Basically, they do the gruntwork.

So they had little to do with creating the mortgage crisis of the aughts. However, despite their unglamorous middleman role, they've been one of the chief obstacles to fixing the mortgage crisis over the past few years. The reason is fairly simple: they make more money by screwing borrowers who are in trouble than they do by trying to come up with solutions. David Dayen explains:

"In general, servicers are paid through a percentage of the unpaid principal balance on a loan. This creates problems when a borrower gets into trouble and can no longer afford their payments. There are many modifications to help a borrower in such a bind, the most sustainable, successful type being direct reductions of the principal, for obvious reasons. But forgiving principal cuts directly into servicer profits by cutting the unpaid principal balance, so most servicers shy away from it. Moreover, servicers collect structured fees ó such as late fees ó which make it profitable to put a borrower in default and keep him there. And foreclosures donít hurt a servicer, because they make back their money owed, along with all fees, in a foreclosure sale, even before the investors for whom they service the loan. The investors take whatever losses result from a foreclosure; the servicer makes out just fine."

So there you have it. Servicers don't like simple principal reduction because that reduces their fees. Conversely, servicers do like it when borrowers get jerked around a lot because that increases their fees. And if it all ends up in foreclosure? That may be too bad for the investors, but servicers make lots of money from foreclosures. The bottom line is simple: servicers do best when distressed borrowers are (a) milked for a while and then (b) foreclosed on.


http://www.motherjones.com/kevin-drum/2013/02/how-make-money-screwing-your-customers

2 replies, 1046 views

Reply to this thread

Back to top Alert abuse

Always highlight: 10 newest replies | Replies posted after I mark a forum
Replies to this discussion thread
Arrow 2 replies Author Time Post
Reply How Mortgage Servicers Make Money by Screwing Their Homebuying Customers (Original post)
Redfairen Feb 2013 OP
Sekhmets Daughter Feb 2013 #1
Sherman A1 Feb 2013 #2

Response to Redfairen (Original post)

Tue Feb 12, 2013, 03:54 PM

1. I knew they had to have something to do with it

thanks so much for posting this.

Reply to this post

Back to top Alert abuse Link here Permalink


Response to Redfairen (Original post)

Tue Feb 12, 2013, 03:55 PM

2. K&R

Thanks for posting.

Reply to this post

Back to top Alert abuse Link here Permalink

Reply to this thread