Why Your Lender May Choose Foreclosure Over Mortgage Assistance

The Treasury Department began a loan modification program in March 2009 to encourage lenders to modify troubled loans to prevent foreclosures. But from the beginning, the process proved slow, frustrating and for many non-existent. All the while, foreclosures continue unabated. But why the hesitation by lenders to help homeowners remain in the home?

Many mortgages are handled by loan service agents. They collect the payments and handle all the on-going business with your mortgage. But they also are the one constant villain in the foreclosure debacle.

The loan servicer lose paperwork, foreclose on homes they have no right to foreclose on, accept borrowers into modification programs while trying to foreclose on them at the same time, they deny borrowers a modification even when they shouldn’t, they’re impossible to get a hold of, and their communication with homeowners is appalling. And you know what, it’s depressing but loan servicers win in the end.

A loan servicers’ primary compensation is a percentage of the outstanding principal balance on a mortgage so the higher the outstanding principal the more their compensation package will be. This definitely presents a conflict of interest.

And while investors say they are all for helping out the homeowner, investors really look at the bottom line – are timely payments being made? So when the money is halted investors want to know that something is being done to recoup losses.

Under the government’s foreclosure program a service loan agent that modifies a loan for a homeowner can collect $1,000 from the government, followed by $1,000 a year for each of the next three years. While those sound like a meaningful incentive to help homeowners the government’s incentive cannot compare to what servicers collect by allowing properties to go into foreclosure.

So where should a homeowner start if looking for a modification?

The first thing that a homeowner should do is have an experienced mortgage attorney examine your loan documents for any potential violations of the lender. Lenders are not legally obligated to modify loans so it really is up to the lender to accept your request.

The more ammo you have to help them shift towards helping you the better.