I recently read a number of blogs about mortgage service rs getting "rich" on service fees paid by Investors on delinquent loans. While it is true that Investors pay the mortgage service rs to process mortgage payments, pay the taxes and insurance policies with the money in escrow accounts, there is a piece of the puzzle missing.
When I was a software programmer writing code for one of the largest mortgage servicers. at the time, the once thing the servicer was most worried about was collecting timely payment. Reason being they had a contract with all GINNY MAE Pools that required the servicer to pay the GINNY MAE investor(s) their share of the monthly interested whether or not the payment was collected. The servicers portion was in the range of .25 of 1% to .33 of 1% annually. For these GINNY MAE Pools, if the payment was not collected the Servicer had to "advance" the money in order to meet the agreed upon contracted amount. If the company did not have the cash on hand to make the payment, then they would of course have to get a "short term" loan from a commercial bank. Prime at that time was about 16% annually (early 1980's).
I believe that this is still the practice on GINNY MAE Pools, mortgage servicers
pay the investors monthly for the number of mortgages in the portfolio they are processing for them. I believe the fees the mortgage servicer receives today for processing mortgage payments, sending statements, calculating escrow amounts, paying tax bills, paying Home Owners Insurance premiums out of the escrow account, still remain about the same .25 to .33 of 1% annually. True, the current cost of borrowed money is much lower with prime down around 1 or 2 percent, however, delinquency rates are radically different today.
in the 1980's normal delinquency of 30 days ran about 1% of the portfolio, in really depressed areas, the delinquency rate was higher and I never saw the total delinquency rate more than about 5%. Today total delinquency rates are in the neighborhood of 15% of the portfolio with long term delinquency, more that 120 days (four (4) months) being the majority of the total delinquency. I have spoken to home owners who are 10, 15 and 20 months delinquent and still living in their mortgaged homes. How many abandoned properties do we see in neighborhoods, where owners just left the property and the mortgage company has no idea that it is vacant. Taxes have to be paid on these properties or the local government agency will sell the property for taxes due, and in most states these tax liens take presidence over the mortgage lien.
In reality, when mortgage payments are not made everyone that has an interest in the mortgage is hurt, the Mortgagor, the Mortgagee, the servicing company, and the tax payer.. When a foreclosure happens it is most likely that the property will sell for less that what is owed, surrounding property values may be effected and in areas that have been hard hit by foreclosed properties, the overall property values have been lowered and in most cases this also applies to the tax base, which should mean lower property tax collections on the part of local government.
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