Yes, the government has passed pages and pages of legislation and they have talked this problem to death, but they cannot seem to grasp the basic communication problems going on here. Nowadays, a person cannot speak with their mortgage company, they usually have to speak with a mortgage servicer.
Before we speak about mortgage servicers, it is important to note that many home-owners do not know that they have a mortgage servicer and honestly believe that the mortgage servicer is the mortgage company. This is why home-owners cannot understand why some trust is foreclosing on them when they make their monthly payment to Wells Fargo.
So a home-owner is experiencing financial difficulties and contacts the mortgage servicer, who is hired by the mortgage company, to collect the mortgage payments. In other words, the mortgage servicer is just an agent of the mortgage holder to collect payments, service the loan, process defaults, pursue foreclosure when necessary and to perform workouts.
My first question is: How does a mortgage servicer get paid?
Well, usually they are paid a nominal fee, about $60 per year per loan, to process the payments. If a loan makes all the payments timely, there is usually nothing to be done. When a default occurs, that is when the servicing fees usually start to kick in, and this is where the servicers really start to get creative on the fees and this is where they usually make their serious money.
Wait a minute, the mortgage servicer profits when a borrower defaults? How is this possible?
Well, you have to really look at the pooling and servicing agreement to see what types of fees and costs are allowed and which of these fees and costs are retained by the mortgage servicer. In other words, your mortgage servicer has a financial interest when you go into default.
The next logical question is: But doesn’t this run contrary to the Trust that owns my loan and the investors who just wants to get paid? It sure does. Think about it for a moment. The investors don’t want defaults, they want returns on their investments. So, they hire a mortgage servicer to handle the day to day operations and look out for the best interests of the trust.
The mortgage servicers operate on razor thin margins, except for the default operations. Upon default, then the margins increase. So, it is in their best interests when a person goes into default.
So the question remains: If you call the mortgage servicer and say I am having problems and I need to miss a payment, what do you think they are going to do?