Why Many Loan Servicers Prefer Foreclosures to Modifications

Loan servicers by and large were not set up to modify mortgages on a large scale and the government has been too slow in providing guidance, as well as adequate incentives, to help them get there quickly. How loan servicers are compensated by the government, under the Making Home Affordable program, still remains inadequately defined. A sizeable investment is required on the part of the servicers to get a system in place in order to perform large scale loan modifications: they include the hiring and training of employees as well as the technology, both software and hardware, required to implement a massive modification program. The underlying system required to pursue foreclosures however is already in place and the servicers recoup their expenses off the top in the foreclosure process. Therefore modifications are not as appealing to the servicers as foreclosures where they can more readily recoup their initial cost outlay. Until the government establishes a way to make loan modifications a more cost effective path to pursue for the mortgage servicers, it is unlikely they will occur in sufficient numbers to make a meaningful difference.

Continued at Mortgage Modification Madness Part II

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