In fact, most of the time, they are not the owner. As an example, 80% of all loans that Bank of America handles are not owned by Bank of America.
The largest owners of US mortgages are two companies that some would allege are owned by Uncle Sam. They are Fannie Mae and Freddie Mac. They own an estimated 55-60% of all US Mortgages.
Another estimated 10-15% are insured by Uncle Sam as well, thru the FHA and VA loan guarantee programs. Another estimated 10-15% are owned by Wall Street Firms, Pension Funds, and other entities.
That means the company you mail your check to every month is essentially a hired gun. They are paid to collect payments, handle accounting and escrows, collect on delinquent accounts, and act as the front person for the owner of the loan.
They forward the money received to the lender, minus a small fee to themselves. This small fee on thousands of mortgages means they are paid very well. In fact, the business is so profitable that IBM Computers opened a subsidiary loan servicing company.
Now that I have laid the groundwork, let me explain how the loan servicing companies have worked against the loan owners best interest.
Acting as a servicer puts them close to the legal equivalent of a trustee. This means they can do whatever they want to, right?
No. Let me explain. See, a trustee has a fiduciary duty to whoever they represent. They are required to act in their client’s best interest.
If they do not do this, then they can be legally liable for any loss their loan owner incurs as a result of the trustee’s negligence. Just as real estate agents are required to act in their client’s best interest, loan servicers are also required to act in their client’s best interest.
Let’s say an agent listed a house and double sided it to a buyer for 600k. A 650k offer came in earlier, but the agent never presented it to the seller. Do you think the seller would be angry? Of course they would be.
Or, let’s say you managed an apartment community. You only had a leasing person on site one day a week. You did this to save money. As a result the apartment complex only leased half of their apartments for the next year.
You caused them to lose half of their year’s rents. Would that apartment manager be unhappy? You bet they would be. The loan servicers are doing the same thing.
Here are a few examples of them breaching their fiduciary duty to their clients.
Example #1: Not giving buyers an answer on a short sale within a reasonable time period. Loan servicers should help their investors recoup as much money as possible from short sales.
Example #2: Turning down loan mods that amortize at a higher value than what is netted on a short sale or thru REO. Let me explain in a little more detail.
A homeowner had a reduction in income and can’t afford his original mortgage payment. The borrower has a stable income and agrees to pay $2,683 a month for the next 30 years. $2,683 a month for 30 years, at a 5.0% interest rate will repay a $499,857 mortgage.
The loan servicer turns down the loan mod and forecloses. The house sells for $400,000 as an REO and the servicer nets $368,000. Did the loan owner lose money?
I think most people would agree that they did. Obviously there are other factors involved, but I think they would have done better if they had approved the homeowner’s offer.
Example #3: Not listing foreclosed properties quickly enough. I have witnessed several examples of banks foreclosing on a house and then taking 6 months to a year to put it up for sale.
As an example, there was a house foreclosed on September 9th, 2009. It was finally listed for sale 7 months later, in May 2010.
Say what you want, but waiting 7 months to put a property on the market is pathetic. If the mortgage holder had been an individual, do you think they would have listed the house a little faster than 7 months?
Thinking about a loan modification? Our Huntington Beach Loan Modification Kit has the instructions you will need to get a loan modification approved with your lender. Click here to request a copy.
Thanks for reading this, Tony Hunthausen.
Tony is a Real Estate Broker Associate at Remax Select One.
Phone: 714-334-7808. Tony@HunthausenGroup.com.
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Tony Hunthausen specializes in loan modification assistance and short sales in Huntington Beach California. Huntington Beach Loan Modification Help, Huntington Beach Short Sales. Huntington Beach Short Sale Realtor Short Sale Realtor. Huntington Beach CA Short Sales. Huntington Beach Realtor.
Copyright 2010 SFI Marketing Institute, LLC. All Rights Reserved. This is not intended as legal, technical, or tax advice. Please speak with a licensed professional before making any decision. Information is deemed reliable but not guaranteed as of the date of writing. The views expressed here are Tony Hunthausen’s personal views and do not reflect the views of Remax Select One. This information on Huntington Beach Short Sales: A Few Examples of Loan Servicers Not Doing Their Job is provided as a courtesy to our viewers to help them make informed decisions.