Mortgage Servicers Profit From ForeclosureAccording to an article in Reuters, the National Consumer Law Center (NCLC) just released a report finding that mortgage servicers have favored foreclosure over loan modification because it’s cheaper and even more profitable to the servicer.

The article said:

“Loan modifications inevitably cost the servicer something. A servicer deciding between a foreclosure and a loan modification faces the prospect of near certain loss if the loan is modified, and no penalty, but potential profit, if the home is foreclosed.”

Bingo! We knew there was a real “bottom-line” reason why the foreclosure crisis was getting worse despite billions in bailout money being thrown at the mortgage industry. It’s simply more profitable to foreclose on homeowners than to keep them in their homes. A matter of fact, the NCLC found that even homeowners who would have benefited from loan modification were still being ushered into foreclosure.

The NCLC says that if we want to stop this foreclosure crisis we must make sure there is more oversight with mortgage servicers and that we take several actions including the following:

  • Mandate loan modifications before a foreclosure
  • Fund quality mediation programs
  • Provide for principal reductions on existing loans in the  Administration’s Home Affordable Modification Program (HAMP) and through bankruptcy reform

Bankruptcy reform is the most powerful tool to level the playing field for homeowners facing foreclosure.  Right now, mortgage servicers and mortgage lenders have the upper hand when it comes to foreclosure; but if we allowed bankruptcy courts to modify toxic mortgages in bankruptcy it would offer a comparable incentive to mortgage servicers and lenders to play fair. By allowing bankruptcy courts to modify toxic mortgages, millions of Americans facing foreclosure and other debt issues could seek bankruptcy relief, avoid foreclosure and remain in their home with an affordable and fair mortgage.