Cheaper to foreclose than offer loan modifications?

Cheaper to foreclose than offer loan modifications?

A new report from the National Consumer Law Center says Mortgage servicers have found it cheaper to foreclose on homeowners than offer loan modifications.  The report points out that servicers in charge of modifying distressed loans are separate from the lenders, who have packaged the loans and sold them in pieces or pools to other banks and investors.   “In the majority of cases, servicers have nothing to do with what’s in the best interest of those investors,” said Diane Thompson, the author of the report and attorney at the NCLC. “We figured this out by following the money, by following who plays what role in all of these business transactions and who gets paid what for doing what.”  Financial incentives encourage servicers to pursue a foreclosure in lieu of a modification, which costs the servicer upfront money in fixed overhead costs, and out-of-pocket expenses such as property valuations and credit reports, according to the report.  “A servicer deciding between a foreclosure and a loan modification faces the prospect of near certain loss if the loan is modified, and no penalty, but potential profit, if the home is foreclosed,” according to the report.