The Servicers Make hay while Foreclosure Sun Shines for them by Extorting Dubious Fees

The foreclosure crisis came about because of the wayward trading by the banks in mortgage backed securities. The latter are investments with the promise of fixed income – the payment is made on a monthly account over a period of time.

The investor gets to have an idea what his or her income will be over a period of time because it is tied to some obligation. For example a charity is expected to give a certain percentage annually; it is the same with a pension funds that has obligations to those who have not yet retired and also with insurance firms that will have to make payments on policies.

But if these securities backed by mortgages are being tampered with by the servicers and the servicing is done in such way that with time it will not yield returns then the whole payment schedule is mucked up. The servicers are doing this by extorting fees, placing the homeowners into default and not admitting the losses.

If the losses are not admitted as they happen, although these are real then the investors are paid in excess during the earlier phase. If they pretend that there are funds in the trust when that is not true then later there will not be any money in the trust. By not recognizing losses today, for tomorrow an insolvency situation is created. This is seriously bad for those who will retire later on.

In the practical field it is the servicer who calls the shots in a deal. The servicers are in touch with the borrowers, collect the payments and decide on moves that would best benefit them. The basic problem with the investors is that there is no way that is effective to oversee the activities of the servicers. Hence when the question of trusting servicers arise the position of the investors is indeed very bad.

The servicers make money by extorting fees when default takes place. One trick, according to Federal Trade Commission, resorted to by services is having an affiliate engage somebody to trim the lawn of a foreclosed unit. That cost of say $75 is sent to the affiliate who turns it into $150 and passes it on to the servicer who then levies it on the borrower. Thus servicers make hay while the foreclosure sun shines for them.