Why You Can't Rework Your Mortgage: Banks Love The Late Fees

Center for Responsible Lending)

That little blue line is the represents homeowners who've staved off foreclosure by reworking their mortgages.

With homes at risk of foreclosure outpacing loan modifications by seven to one, the Obama administration met with mortgage servicers this week. The servicers promised they would speed up the pace of working out new deals with struggling homeowners.

Now a report in the New York Times suggests that mortgage servicers have an incentive to keep borrowers on the hook when those borrowers can't make their payments on time. From the NYT:

Even when borrowers stop paying, mortgage companies that service the loans collect fees out of the proceeds when homes are ultimately sold in foreclosure. So the longer borrowers remain delinquent, the greater the opportunities for these mortgage companies to extract revenue — fees for insurance, appraisals, title searches and legal services.

"It frustrates me when I see the government looking to the servicer for the solution, because it will never ever happen," said Margery Golant, a Florida lawyer who defends homeowners against foreclosure and who worked in the law department of a major mortgage company, Ocwen Financial. "I don't think they're motivated to do modifications at all. They keep hitting the loan all the way through for junk fees. It's a license to do whatever they want."

You might remember a Planet Money visit to Ocwen headquarters in Florida. The company reports it refinances 75 percent of its troubled mortgages, compared to an industry average of 10 percent.