As far as whether it’s better for a servicer to keep loans in the pool – well, why would a servicer really care other than for every loan that goes belly up that’s one less opportunity to collect “fees” above and beyond their .375% or whatever figure it was that they were collecting as a “servicing fee”.

In many cases, servicers already have incentives to offer mods – depending on how the Pooling and Servicing Agreement for the trust prospectus is written. Depending on the negotiated terms of the PSA, the servicer would get to keep the modification fee as additional servicing compensation as well as late fees, etc. And, quite frankly, the longer a servicer can keep a borrower in the loan, the longer the servicer can bleed the borrower and/or the equity in the home.

Regardless, the various insurance policies that insure the trusts will absorb the costs of any loan found floating face down in the pool. That’s one of the reasons I choke every time I hear the whole “there-is-no-money-in-foreclosures” mantra. To date, I have yet to see ANYONE prove how a foreclosure costs a lender/noteholder upwards of $50,000.00 All of the associated fees are charged back to the borrower where they eat up any equity a borrower may have in the property.

Once either the borrower can no longer squeeze out any more payments or the equity in a property is sufficiently absorbed, it’s time to foreclose the property and auction it off – effectively laundering the property from the lender/noteholder’s books and getting it ready for the next cycle.

And please forgive me, it’s just too late tonight to spell check – which should make for potentially interesting reading.

That is very interesting. I’m not at all close to servicing, and the media barely understands the concept, so more information is always helpful.

If what you say is true, it may point to a different pattern in servicer behavior: letting the borrower hang in the breeze a bit but still offering a mod to prevent/forestall foreclosure.

My understanding is that it’s still better for a servicer to keep a loan in the pool rather than have it become REO. If so, they have an incentive to offer mods to the extent they can as the course of higher fees. What’s your view on that? That’s really the key issue here, whether the servicer has an incentive to offer mods.

According to virtually every prospectus that I’ve read, servicers get to keep modification fees, forbearance fees, and late payments as ADDITIONAL SERVICING COMPENSATION. That being the case, there is absolutely zero incentive for a servicer to keep a borrower current in their loan. To do so cuts the servicer’s bottom line drastically.

One of the big complaints against Fairbanks Capital n/k/a Select Portfolio Servicing Inc. in USA/Curry v. Fairbanks was that payments made on time were not being posted until after they considered “late” by the servicer. I have proof of this in my own case. A payment that I had made that was received before the expiration of my grace period was held for 11 days between the time it was received (April 12) and the time it was processed (April 23)by Fairbanks. On the stand, under oath, before a judge their legal counsel attempted to get me to agree that the processing date (April 23) was the date that the payment was received. The only problem with that argument was that the check was stamped “received April 12″ on the front of it.

Next thing I’ll be hearing is that there is no money for lenders or servicers in foreclosures…

Mike Dillon
Manchester, NH
http://www.getdshirtz.com