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Loan Servicers Earn More With Foreclosures Than Loan Modification

There have been too many news regarding errors on foreclosures and the paperwork that accompanies it. Given that homeowners on default have the option for loan modification, it is a wonder why banks do not just go that route. An attorney with the National Consumer Law Center gives the reason behind this.

National Consumer Law Center’s Diane Thompson explained why banks and servicers would rather foreclose than modify loans even if it’s being predicted that soon foreclosures will outnumber loan modifications by approximately two million foreclosures to 1.7 million modifications. According to her, those who service loans – does the paperwork, sends out bills, and collects monthly mortgage payments – actually earn more for foreclosing homes rather than modifying loans.

Investors do pay for routine work like collecting and passing mortgage payments. This is a small percentage though, comparing to how much servicers will get for foreclosing on homes. With foreclosures, servicers keep the late fees collected and all the other fees associated with foreclosure. But if a servicer fails to grant a modification, there are no penalties given.