Modify mortgages, lose fees

Banks' reluctance may stall relief

The New York TimesJuly 30, 2009 

This week, the Obama administration summoned mortgage company executives to Washington to demand they move faster to lower payments for homeowners sliding toward foreclosure. Treasury officials called on the companies to hire and train more people quickly to field applications for relief.

But industry insiders and legal experts say the limited capacity of mortgage companies is not the primary factor impeding the government's $75 billion program to prevent foreclosures. Instead, it is that many mortgage companies are reluctant to give strapped homeowners a break, because the companies collect lucrative fees on delinquent loans.

Even when borrowers stop paying, mortgage companies that service the loans collect fees out of the proceeds when homes are ultimately sold in foreclosure. So the longer borrowers remain delinquent, the greater the opportunities for these mortgage companies to extract revenue -- fees for insurance, appraisals, title searches and legal services.

"I don't think they're motivated to do modifications at all,"

said Margery Golant, a Florida lawyer who defends homeowners against foreclosure and who worked as deputy counsel for a major mortgage company, Ocwen Financial. "They keep hitting the loan all the way through for junk fees. It's a license to do whatever they want."

Rich Miller, a governance project manager at Countrywide Financial and Bank of America before he left in January, said Bank of America had been reluctant to modify loans, which hurts the bottom line. The company has been waiting and hoping the economy will improve and delinquent customers will resume making payments, he said.

"That's the short-term strategy," said Miller, who oversaw training programs at Countrywide, which was bought by Bank of America, and now works as an industry consultant.

Bank of America disputed that characterization. "To think that somehow or other we would jeopardize investor relationships and customer relationships for the very small incremental income we would receive by delaying seems ludicrous," said Robert V. James, senior vice president for mortgage operations and insurance. "It's not the right thing to do."

Mortgage companies, some affiliated with the nation's largest banks, are paid to manage pools of loans owned by investors. Under their contracts, the companies typically collect a percentage of the value of the loans they service. They extract their share regardless of whether borrowers are current on payments. Their percentage often increases on delinquent loans.

Under the Obama administration's foreclosure program, a servicer that modifies a loan for a homeowner collects $1,000 from the government, followed by $1,000 a year for three years.

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