Mortgage Modification Is Money Loser For Service Company

Homeowners with upside down mortgages say that it is very difficult to get their lenders to modify their mortgages under the HAMP program. One reason is that mortgage service companies make less money when a homeowner modifies a mortgage than they make when the mortgage holder forecloses or the homeowner is able to refinance, this according to a law review article in the Washington Law Review. Jacksonville bankruptcy attorney Chip Parker wrote a blog post about the law review article. He concludes that because of the way HAMP is structured a mortgage service company has no financial incentive to modify home mortgages.

The analysis is consistent with the failure of Florida’s mortgage mediation program in state court foreclosure cases. The Supreme Court recently terminated mandetory foreclosure mediation because it found the program was not significantly helping homeowners stay in their primary residences. As I have previously noted, Chapter 13 bankruptcy rules provide for court ordered mortgage mediation. Chapter 13 mediation has been successful. More than half of Chapter 13 mortgage mediation have been resulting in permanent mortgage modifications regardless of mortgage service financial incentives.