Mark Winston Griffith

Servicers Play Starring Role in Subprime Drama

Anyone who has been following the subprime mortgage industry over the past year has grown to appreciate what a remarkably complicated business it is. If the world of financial services were transmitted to television, the subprime mortgage industry would be the Sopranos, stacked with a parade of quirky protagonists, shifty villains and impossible plot twists strewn with bloodied bodies and shattered lives. Government and law enforcement officials are of course minor characters who sit idly by on the sidelines as mayhem ensues and goes, from episode to episode, almost entirely unchecked.

Recently mortgage servicers - the institutions that interface with the borrower and manage the collections process -are getting increasingly more airtime in the subprime melodrama. While some mortgage servicers are the originating lenders themselves, many are third parties contracted by the lender.

An article in the New York Times on November 6th, Dubious Fees Hit Borrowers in Foreclosures details how "questionable practices among lenders are coming to light in bankruptcy courts, leading some legal specialists to contend that companies instigating foreclosure may be taking advantage of imperiled borrowers." The article tells a sordid tale of how some mortgage servicers represent yet another layer in a series of abuses that may have already included unscrupulous brokers, lenders or other real estate scammers.

Talk to non-profit, anti-foreclosure, mortgage counselors and they will tell you what a difficult time they have had trying to work with servicers as they try to help borrowers secure loan modifications that will enable them to keep their homes. Contrary to the propoganda being put out by the industry about how servicers are aggressively avoiding foreclosure, in reality, many of the servicers say that they are prevented by the investor or the mortgage insurance company from making modifications. Others simply barely return phone calls.

Despite all the attention in the press given to the starring roles played by regulators, brokers, loan originators and Wall Street investment houses, the servicers play a crucial lead in determining how many subprime borrowers will end up losing their homes. But unlike the hopelessly compromised FBI agents in the Sopranos, let's hope policy makers step in and stop the carnage.

Mark Winston Griffith: Author Bio | Other Posts
Posted at 1:41 AM, Nov 09, 2007 in Economic Opportunity
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