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A Foreclosure Tsunami Part 2

Posted by CM on September 22, 2009


Excerpts from Diane E. Thompson’s written testimony to the U.S. Senate, Click here for full testimony

Servicer and Investor Relationship

  • Investors lose 10 times more on foreclosures than they do on modifications.
  • Servicers, not investors, make the decision to modify a loan.
  • Servicers are automated pass-through accounting entities, whose mechanical actions are performed offshore or by personified computer systems. 
  • Servicers’ entire business model relies on making money by skimming profits from what they are collecting. 
  •  Performing modifications would cost servicers upfront money in fixed overhead costs, including staffing and physical infrastructure. 
  • Modification services are NOT compensated by the loan owner and the investor is paid first.   
  • The servicers’ costs in a foreclosure ARE compensated and the servicer is paid before the investor. 
  • Servicers have no motivation to change their ways, they have a successful business model, and weak oversight and incentives.  To see changes in behavior, servicers need to be fined for not making loan modifications. 
  • Homeowners have few market mechanisms to ensure that their needs are met from servicers. 
  • Servicers increase their net worth by gambling on market trends, not by providing top-notch customer service. 
  • Currently, investors recover more through refinancing than by modification.
  • With an underwater home, investors lose 65% in a foreclosure.
  • Investors will only lose 20% in a modification of an underwater home.
  • INVESTORS ARE NO MORE POWERFUL THAN BORROWERS IN PROVIDING DIRECTIONS TO SERVICERS.  

Sources:
1.  Preserving Homeownership: Progress Needed to Prevent Foreclosures.  Written testimony of Diane E. Thompson, National Consumer Law Center and on behalf of National Association of Consumer Advocates.  Before the United States Senate Committee on Banking, Housing, and Urban Affairs.  7/16/09.
2. National Consumer Law Center: www.consumerlaw.org
3. National Association of Consumer Advocates: www.naca.net
4. U.S. Senate Banking, Housing, and Urban Affairs Committee: http://banking.senate.gov/public
5. Making Home Affordable: www.makinghomeaffordable.gov

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