At the start of the foreclosure crisis, personal finance consultants told struggling homeowners to contact their lenders if they couldn’t pay their monthly loan payments. The lenders, they were told, wanted to do everything they could to avoid a foreclosure.
Now these consultants aren’t so sure that the banks want to avoid foreclosure. Homeowners start down a difficult road towards loan modification and are met with indifference and incompetence at the bank.
In March, the Treasury Department did begin a loan modification program to encourage loan servicers to modify troubled loans to prevent foreclosures. But the process has proved very slow and frustrating, and foreclosures continue.
According to a new report by the National Consumer Law Center, it’s no mystery why loan servicers are dragging their feet on loan modifications. The report suggests that these companies actually stand to make money if the troubled property goes to foreclosure.
In almost every case, the loan servicer doesn’t own the loan. It’s simply a company — usually a bank — hired to collect the money from the homeowner and deliver the funds to the investors who own the mortgage. The investors lose money if the property goes to foreclosure, but the servicer doesn’t. And homeowners seeking to save their homes by modifying unaffordable loans typically deal with these servicers.
“Loan modifications inevitably cost the servicer something,” the report says. “A servicer deciding between a foreclosure and a loan modification faces the prospect of near certain loss if the loan is modified, and no penaly, but potential profit, if the home is foreclosed.
This report certainly poses a dilemma to the homeowner appplying for a loan modification. If you are one of these homeowners, be sure you are working with a qualified professional who can guid you through the loan modification process.