Wake Up America and Smell the Coffee

Katie Porter thinks you don’t get it, judges, legislators and regulators. Professor Porter, of the University of Iowa College of Law, thinks you do not understand the competing interests between a mortgage owner and a mortgage servicer. And if you don’t get it, how do you expect the legions of borrowers to understand the current mortgage industry. Put aside your Wall Street Journal and pay attention. Class is in session. Kudos to you, Professor, for your excellent post, Negotiating With the Mortgage Company, appearing in the April 12th edition of Credit Slips. Professor Porter points out the disconnect that prevents most borrowers from achieving one of the many mortgage modifications that Washington D.C. keeps trotting out as fast as it prints money– money – greed – profit. My words not hers. But she points out that while a mortgage owner loses money when mortgages default, mortgage servicers, namely default servicers, tap the money pipeline.

Common sense suggests that a mortgage owner would rather have steady payments rather than sell a foreclosed house in a depressed market. But foreclosure is part of the profit stream. Servicers profit from the late fees charged to a loan. And they get first count, and pay themselves before they send money upstream to the mortgage owners. Why does he keep calling them mortgage owners. Aren’t they lenders, I ask myself? No, I answer, long gone are the days when your local bank lends you money to buy a house and retains ownership of the loan. Oh a few still do, but the vast majority of loans are sold to investors as part of securitized trusts, collateralized debt obligations, tranches, yada, yada, yada. Where does the mortgage industry come up with these pretty words?

But back to the default servicers, don’t trust them. They place payments into suspense accounts, create defaults, charge late fees, inspection fees and attorney fees. Professor Porter points out that it costs servicers up to $1000 to work loss mitigation. So why should they do so at their own cost when they make millions. Professor Porter believes legislation is necessary. Without it, loss mitigation modifications are just more pretty words.