Firm Commentary:
Why do loan servicers like CHASE, OCWEN, WELLS FARGO, CITIBANK, NATIONSTAR, AURORA, BANK OF AMERICA and GMAC\ALLY take so long to competently process loan modifications? The make more money off of you and the loan’s real owner in “servicing fees” while your loan is in default status.
Here’s how it works: Loan Servicers don’t own your loan even though they send you statements, manage the foreclosure process loan mod requests. They are hired guns who hold “servicing rights” which often passed from company to company. RESPA law dictates how borrowers are advised of changes in servicing. Just because the servicer changes, it doesn’t mean your loan has been “sold”. Prior to the 2009 changes to the Truth in Lending Act, no one had to reveal if your loan was sold-only a change in the loan servicer. Under TILA today, the new owner of your mortgage must now advise you of the contact information within 30 days of the transfer with limited exceptions.
Most borrowers pay on time and loan servicers don’t have much to work on other than monthly accounting. For this service, they earn 25 basis points for a prime (0.25% of the mortgage payment); 35 basis points for an ARM; and 50 basis points for a subprime. However, once a loan goes into “default” status…those fees can double or triple. In addition, the servicer earns fees from other aspects of default…such as inspections, document fees, interest on suspense accounts and force placed insurance.
Typically, the mortgages themselves are owned by Mortgage backed security Trusts which are pools of 3,000-5,000 mortgages. Pension plans, Hedge Funds, insurance companies and governments are typical “investors” into these bond products who remain faceless and powerless to make decisions about the management of the loan mod and default processing. The power usually rests with the servicer. The loan servicer is obligated to “advance” money to the bond holders each month based on the agreed to fixed bond payment whether enough mortgage payments came in or not. These advances are “receivables” or monies owed by the investors to the loan servicers that get re-couped by the servicer later once the house is foreclosed or the loans start performing again. As such, the loan servicers recover a lot of their money upon foreclosure of homes contained in the pool. As such, the servicers have an incentive to drive up these fees by stringing homeowners along before eventually foreclosing and scooping up their profits.
The receivables are so massive, those loans servicers like are beginning to sell or securitize them. NAtionStar just announce the sale of $2Billion in receivables they have racked up at the expense of borrowers and investors…in essence, they sell off the rights to the cash that comes from foreclosures that they plan to effectuate. The deals are being marketed as $450 million Advance Receivables-Backed
Notes Series 2013-VF1, $409 million Advance Receivables-Backed Notes Series
2013-VF2, $153.3 million Advance Receivables-Backed Notes Series 2013-VF2,
$350 million Advance Receivables-Backed notes Series 2013-T1, $350 million
Advance Receivables-Backed Notes Series 2013-T2 and $300 million Advance
Receivables-Backed Notes Series 2013-T3.
The designated prepayment model includes both loan- and pool-level recovery
mechanisms for servicer advances. Additionally, the series note holders will be paid from the reimbursement of the deferred servicing fees, escrow and corporate servicer advances by
non-loan level and loan-level collateral.
People frequently ask…why won’t the bank just give me an answer and modify my loan since my house is so far underwater? Its simple: you are dealing with the middleman who seeks to exploit the flawed program set up by our government at your expense and the expense of the pension plan investors sucked into these deceptive investments.
