Foreclosures Mean Big Money for Lenders

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Foreclosures Mean Big Money for Lenders

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The Obama administration is trying to pressure mortgage companies to move quicker in lowering payments for homeowners facing foreclosure. But many observers believe lenders are dragging their feet because they collect lucrative junk fees on the delinquent loans.

The New York Times:

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.

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By Terradea, July 30 at 2:49 pm #
(Unregistered commenter)

This is EXACTLY what is happening with student loans. When a student defaults, the lender is able to add 25% to the loan amount. Why would a lender help a borrower avoid default and make payments when they can realize a 25% pure profit on the loan? Add that to the fees and penalties, and you have a lender with no motivation to help anyone avoid default. And without consumer bankruptcy protection for the borrowers, these lenders often give money to seriously underqualified borrowers. Genius!

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By ChaoticGood, July 30 at 1:21 pm #

Bankers have always been borderline pirates, but they have sunk to a new low. This is the banking equivalent of selling short in the stock market and then forcing the price down to make profits. It is beyond redemption. America is becoming a more heartless and short term stupid than ever. It is time to tax away all profits made by this subterfuge and remove any incentives to banks to use the goodwill of the American public as a weapon against the public. I guess some of these bankers have to be perpwalked out of their temples of greed before the rest will listen.

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