Mortgage servicers are not particularly motivated to modify mortgages. Why? The reason is simple enough; mortgage servicers can earn far more money on a foreclosure than a mortgage modification. And as with any business, profit is a strong motivator. This is how it works:
Mortgage servicers manage the paperwork of a mortgage, send out the mortgage bill and collect mortgage payments from the debtor. Mortgage servicers earn their money when they collect mortgage payments on behalf of the investors. Once a debtor stops making payments the property goes into foreclosure and the mortgage servicer then earns their money from late fees and other fees associated with the foreclsoure. They DO NOT earn this extra money when they modify a mortgage other than minuscule incentives from the HAMP program.
Now some homeowners have been complaining that mortgage servicers have steered them into trial modifications only to foreclose on them at the end of the trial modification period.
Here’s the important part:
These homeowners were not at risk for immediate foreclosure BEFORE they signed up for the trial mortgage modification. But what happens is that after they are denied a permanent mortgage modification the mortgage servicer then demands that they repay the unpaid mortgage payments from the previous three months, plus interest and penalties.
When the homeowner fails to repay the money they lose their home to foreclosure . This doesn’t sound fair to the homeowner who believed that they were getting a mortgage modification but ended up stepping into a foreclosure trap. Many of these homeowners have been in their home for years; but were upside down or facing a mortgage reset on an ARM and needed to modify the mortgage. Certainly the mortgage servicers knew that there was at least a possibility that the homeowners would not be approved for a permanent mortgage modification. Did they even warn the homeowners that if they did not get the permanent mortgage modification that they could lose their home to foreclosure?