Dillard said unresponsive borrowers also slow modifications, and that borrowers routinely submit incomplete paperwork. In addition, some investors—who own pieces of the mortgages—are resistant to modifications and need to be convinced, she said. She pointed out that the 40-plus servicers in HOPENOW make modifications outside HAMP as well.
Little optimism
Michael Hickey, executive director of the Center for New York City Neighborhoods, said he is not particularly hopeful that the process will get fixed right away.
When the Center for New York City Neighborhoods observed foreclosure conferences in courtrooms across the city last summer, it found servicers and attorneys for the banks routinely unprepared to negotiate payment plans, unfamiliar with the details of borrowers' cases and not empowered to actually make a modification or payment plan offer. The servicers rarely came to court with a phone number for the servicing company that actually led to a person who was authorized to make settlement decisions.
An October report from the National Consumer Law Center suggests it isn't in servicers' financial interest to make modifications. Despite the $1,000 per completed modification under HAMP, servicers make more money continuing to collect fees on delinquent mortgages than modifying them, the report says. A major portion of their earnings is based on a percentage of the mortgage principal. Lowering that principal would cut into their revenue. And even if a mortgage eventually goes into foreclosure, the servicer is made whole, and can collect all those months of accumulated fees at auction. The servicers get paid first—ahead of investors—at auction.
Responding to skepticism about whether servicers actually want to offer avoid foreclosure, Dillard said her industry is certainly on the team. It just takes a while to get up to speed.
"Servicers are used to getting beat up. But we do believe modification is certainly preferable to foreclosure," she said.
During the course of the conference, an estimated 1,662 American homes went into foreclosure.
