Peter S. Goodman wrote an article in the New York Times on July 30th making the case as to why loan servicers may be financially benefiting from homeowners defaulting on their loans which could explain the reluctance of these loan servicers to modify loans and make them more affordable.
Goodman writes, "Mortgage companies, some of which are affiliated with the nation's largest banks, are paid to manage pools of loans owned by investors. The companies typically collect a percentage of the value of the loans they service. They extract their share regardless of whether borrowers are current on their payments. Indeed, their percentage often increases on delinquent loans."
In fact, according to the article, even the Federal Reserve Bank of Boston has come to the same conclusion in a paper they recently published, "The rules by which servicers are reimbursed for expenses may provide a perverse incentive to foreclose rather than modify".
Goodman writes, "Data on delinquencies reinforces the notion that servicers are inclined to let problem loans float in purgatory - neither taking control of houses and selling them, nor modifying loans to give homeowners a break."
According to the article and First American Core Logic, the numbers of loans that are 90 days past due has surged over the past year from 1.8 million in June of 2008 to nearly 3 million in June of 2009. And yet despite this surge in delinquencies, the number of homes that have actually been taken back by the bank has fallen from 333,000 in June of 2008 to 245,000 in June of 2009.
This article certainly supports the fact that the housing market has not reached a bottom yet, but rather we are in the eye of the storm. While demand appears to have bottomed, at least for the interim, the number of loan delinquencies continues to surge. According to the MBA, a record 12.07% of all mortgages were at least 90 days late.
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