Friday, 05 November 2010 12:09

Here Is a Reason Why Mortgage Modifications May Be Moving So Slowly, The Servicer Gets the Vig!

From an astute BoomBustBlogger that reads the fine print buried in the middle of a 250 page servicer agreement...

IF THIS IS A TYPICAL PSA, NO WONDER SO FEW LOAN MODS BECOME PERMANENT.  THE SERVICER GETS 25% OF THE FORECLOSURE PROCEEDS.

http://www.secinfo.com/d1Ax6e.u1u.c.htm

3.12 Realization on defaulted mortgage loans CitiMortgage will use its best efforts, consistent with its customary servicing procedures, to foreclose upon or otherwise comparably convert the ownership of properties securing any mortgage loans that continue in default and as to which no satisfactory arrangements can be made for collection of delinquent payments pursuant to section 3.2. Consistent with the foregoing, CitiMortgage will use reasonable efforts to realize upon defaulted mortgage loans in a manner that will maximize the receipt of principal and interest by the certificate holders, taking into account, among other things, the timing of foreclosure proceedings.

If a deficiency action is available against the mortgagor or any other person, CitiMortgage may proceed for the deficiency. CitiMortgage may retain 25% of the net proceeds received from a mortgagor pursuant to a deficiency action as compensation for proceeding with the deficiency action.

The reader's interpretation was slightly off. The servicer get's to go after the mortgagor in a delinquency action. Please let it be known that this in know way alters the conflicting dynamic that allows for the servicer to push certain mortgagors into foreclosure vs a mod work out. If you are self-employed and judgment proof, you are more likely to get a mod than if you are high income with a steady job with garnishable wages. The profits could very well keep rolling in. Let's engage in some chart porn...

 


As you can see, economic housing activity is horrible, and getting worse. If you are a bank with a mortgage book or trying to lend, you're in the wrong business. If you can simply service the loans without credit risk AND grab a 1/4 of the foreclosure delinquency action proceeds as the vig, your doing better than most drug dealers. Look at how the foreclosure business is panning out... [this line has been modified to reflect the servicer entitlement to delinquency judgments vs foreclosure proceeds]

[youtube MutLxFck9Ec]

Subscribers have access to all of the data and analysis used to create these charts, in addition to a more granular application, by state in the SCAP template and by region in housing price and charge off templates – see

See the following posts for an extensive background on the topics discussed in the video:

Pay Attention to the National Association of Realtors and Their Chief Marketing Agent At Your Own Risk!

[youtube iLKYxfxHpuY]

  1. Is the US Government About to Forgive Mortgage Debt? Let’s Crowdsource Our Way Through a Scenario or Two!
  2. Why the Case Shiller Index, Although Showing Another Downturn Coming, is Overly Optimistic and Quite Misleading!
  3. Yes, Housing Prices Have Much Farther to Fall. We’re Talking Years…
  4. Because 105% LTV On Depreciating Property Wasn’t Good Enough for the US Taxpayer…
  5. I Told You Housing Was Going to Take a Downturn for the Worse. I’ll Tell You Something Else, We Are in a Housing Depression! It’ll Get Worse Until Market Forces Rule Over Government Bubble Blowing!
  6. As I Made Very Clear In March, US Housing Has a Way to Fall
  7. It’s Official: The US Housing Downturn Has Resumed in Earnest
  8. The Great Global Macro Experiment, BoomBust Cycles, and the Refusal to See the Truth: Bubble Economics in the Mainstream Media
Last modified on Thursday, 14 July 2011 10:36

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  • Comment Link Mark Hankins Sunday, 07 November 2010 09:57 posted by Mark Hankins

    Deficiencies in Florida are seldom sought. Jonathan Alper's blog mentions 8k foreclosures in Lake County in a 2 year period without any.

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  • Comment Link Reggie Middleton Saturday, 06 November 2010 16:07 posted by Reggie Middleton

    Interesting comment from this post syndicated on ZH:
    this 25% clause is not the reason why servicers are reluctant to modify Remic-owned mortgages and prefer instead to foreclose. But there are lots of other reasons.

    ABS holders as a group are resisting modifications and short sales. They don't trust servicers to stand up for their interests, and generally want to force the servicer to swallow at least part of the cost, which servicers of course reject out of hand. There are multiple cases moving through the courts in which ABS holders are trying to stick servicers or sellers with the cost of mods and short sales. The servicer and seller are usually one and the same big bank.

    So for servicers of Remic-owned mortgages, agreeing to mods and short sales is a risky can of worms, as there's no guarantee the cost can be passed on to the ABS holders. By contrast, the servicer's rights in foreclosure are clear: the servicer gets to recover all its costs out of foreclosure sale proceeds, before the ABS holders get a penny.

    Also, there are opportunities for corruption in the foreclosure process that can bring the servicers or employees of servicers extra income. They can pay friendly lawyers and other contractors inflated fees and then recover them out of the foreclosure proceeds. They can manipulate the foreclosure auction process to sell properties cheaply to friends.

    That said, servicers have different incentives depending on the particulars of the borrower and the loan. If it's a broke borrower and cheap house, the servicer will want to foreclose quickly to ensure its out-of-pocket costs don't exceed the foreclosure proceeds. If the borrower is able to pay something and the house is at least decent, the servicer will usually drag out delinquency while racking up various fees.

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  • Comment Link Reggie Middleton Saturday, 06 November 2010 16:02 posted by Reggie Middleton

    Use Wikipedia.

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  • Comment Link Winston Saturday, 06 November 2010 12:38 posted by Winston

    Off Topic

    I've been reading in the archives, and I've seen on more than one occasion references to regression testing. I'm having trouble finding relevant information to learn about this concept. Might anyone be able to point me to a website help me to understand this process. The article I'm reading refers to a rolling-window regression. Thanks in advance.

    Article:
    http://research.stlouisfed.org/wp/2007/2007-039.pdf (page 5)

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  • Comment Link Reggie Middleton Saturday, 06 November 2010 10:08 posted by Reggie Middleton

    s you are correct, although that still does not make the seriver's conflicts any more appetizing. I will post the clarification

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  • Comment Link Alan Saturday, 06 November 2010 09:01 posted by Alan

    The 25% is for a deficiency action taken against the mortgagor, not the foreclosure. This means a court action after the foreclosure to collect on the deficiency not the foreclosure proceeds from the sale of the property.

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  • Comment Link Sabastian Belfon Saturday, 06 November 2010 01:23 posted by Sabastian Belfon

    This reminds me of the legal fees tacked onto defaulted student loan after the lender has collected on the default amount from the Federal Government (that's why their called GUARANTEED student loans).

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