If you've defaulted on your loan payments, you must be thinking of applying for a loan modification to save the property. We, the borrowers, think that it would be beneficial for the lenders and mortgage servicers to modify the loan rather than foreclose. But in reality, things are different.
As per a new report of the consumer advocacy group, mortgage servicers make more money if they foreclose the property. So, who are the mortgage servicers? They are the companies who collect the monthly dues from the borrowers and distribute it amongst the investors. It has been noted that the homeowners, lenders and investors generally lose money on a foreclosure whereas mortgage servicers do not.
What do homeowners think of foreclosure?
As homeowners, we think that a foreclosure would not be a good option for the lenders and investors. Both of them would lose money if they foreclose the property. It is believed that if a lender forecloses the property, he will have to settle for 20-30 cents on a dollar.
What do mortgage servicers think of forceclosure?
The loan servicers have different priorities and thus, do not think of foreclosures in the same way as the borrowers. Servicers do make profit when a property is foreclosed unlike loan modification wherein the servicers may face a loss. Also, the incentives offered to servicers in order to help avoid foreclosure are much less compared to the profits they make by foreclosing a property. This is one of the reasons which resulted in the $75 billion program to limit foreclosures by the Obama Government. The money would be given to servicers who would modify home loans.
Are there any steps taken to encourage modification?
As per a new report published by the National Consumer Law Center (NCLC), some steps have been suggested to encourage modification. Some of them are as follows:
- To fund loan mediation programs.
- To mandate loan modification before foreclosure.
- To provide principal reductions on existing loans though HAMP.
- To regulate loan originations.
- To report loan modifications in a transparent and uniform manner.
- To limit fees charged to borrowers.