Does My Bank want to Help me? or Foreclose my Home
No, it is a simple fact that your bank has no financial incentive to help you prevent foreclosure . The Government programs currently in effect make it more profitable for lenders and Mortgage servicers to foreclose on properties. This is made clear in the January 4, 2012 “White Paper” Report from the Federal Reserve to Congress (emphasis ours):
The resulting surge of delinquencies (figure 4) has overwhelmed the housing finance system. Mortgage servicers were unprepared for the large number of delinquent borrowers and failed to invest the resources necessary to handle them properly, resulting in severely flawed and, in some cases, negligent servicing practices. Exacerbating the problem, some of the incentives built into servicing contracts encouraged foreclosures rather than loan modification .
The standard servicing compensation model assumes that the revenue streams are more than enough in low-default environments, allowing servicers to cross-subsidize for high-default scenarios. But most Mortgage servicers do not appear to have invested in enough infrastructure, or reserved sufficient capital, for high-stress conditions. Thus, they were ill equipped to deal with the magnitude of the ongoing foreclosure wave. Also, the fee structure of the servicing industry helped create perverse incentives for Mortgage servicers to, for example, reduce the costs associated with working out repayments and moving quickly to foreclosure, even when a loan modification might have been in the best interest of the homeowner and investor.
From the aforementioned “White Paper” Report from the Federal Reserve to Congress (emphasis ours) :
Thus far in the foreclosure crisis, the mortgage servicing industry has demonstrated that it had not prepared for large numbers of delinquent loans. They lacked the systems and staffing needed to modify loans, engaged in unsound practices, and significantly failed to comply with regulations. One reason is that Mortgage servicers had developed systems designed to efficiently process large numbers of routine payments from performing loans. Mortgage Servicers did not build systems, however, that would prove sufficient to handle large numbers of delinquent borrowers, work that requires servicers to conduct labor-intensive, non-routine activities. As these systems became more strained, servicers exhibited severe backlogs and internal control failures, and, in some cases, violated consumers’ rights. A 2010 interagency investigation of the foreclosure processes at Mortgage servicers, collectively accounting for more than two-thirds of the nation’s servicing activity, uncovered critical weaknesses at all institutions examined, resulting in unsafe and unsound practices and violations of federal and state laws.
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