In order to help struggling homeowners have a chance at avoiding foreclosure, the Obama administration is looking to restructure the way mortgage servicers are compensated. The administration believes making this change could help make it easier for servicers to modify mortgage loan terms for those about to lose their homes.
Existing System Provides Little Incentive for Servicers
Housing and Urban Development Secretary, Shaun Donovan, and Treasury Secretary, Timothy Geithner, expressed in a joint statement their belief that the way mortgage servicers (firms that collect loan payments on behalf of a loan’s owner) are paid is “broken and should be fixed.”
The existing system, as they see it, provides little flexibility to change the terms of a loan, especially if a borrower falls behind on their mortgage payments.
The current system pays servicers a monthly fee for collecting payments on performing loans. When loans go bad, monthly fees decline. This is believed to give the servicer little incentive to try to communicate with the borrower or work out new terms.
Mortgage servicers are simply not motivated to invest their time, effort or resources into exploring all of the options available to help delinquent borrowers avoid foreclosure.
Changes Must Be Made
Because the process is time consuming and costly, many believe changes must be made to convince mortgage servicers to strike deals with borrowers. This is why the Federal Housing Finance Agency (FHFA) is seeking input from the industry, investors, consumer groups and other government agencies to figure out how to change the system.
Foreclosure filings and repossessions reached record numbers in 2010, and while 500,000 borrowers have received permanent loan modifications under the Home Affordable Modification Program (HAMP), many more could have avoided foreclosure if they’d received help from servicers.
The FHFA is pushing to get some solid modification ideas and plans in place as soon as possible, but actual changes to the system aren’t expected to take place before the middle of 2012.
I blog on this all the time (see link in name) I am with groups that are fighting foreclosure and fraud. It is ASININE that we are facing more than 1 million foreclosures THIS year (we had 1 million last year) and yet they D R A G their heels for another year????? This is ludicrous.
I think everyone should stop paying tax money until the government leadership gets a clue.
When foreclosures first started there was a call by the government to streamline modifications – that just added more cost to homeowners but did help. NOW IT IS JUST A NIGHTMARE.
People need to wake up before we lose America. The fraud is rampant and the greed is intolerable.
How come honest hard working folks strugle and do without every month but somehow just manage to scrape together the interest only mortgage payment on their home, yet can’t afford a safe car in which to install the infant and child safty seats for their two small daughters. When
this family ask for help they were denied because instead of going out and getting a new car they continued to make their mortgage payments. They can’t qualify for a loan on their own the banks say their debt to income ratio is too high. Had they stopped paying their mortgage they were told they could get help! SO HOW ARE WE TEACHING PEOPLE TO BE RESPONSIBLE ?? WHERE IS THE PAY OFF FOR DOING THE RIGHT THING ?? DID ANYONE LEARN ANYTHING FROM THIS WHOLE FEASCO ?? DOES THIS FAMILY DISERVE HELP ??