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WhyServicersForeclose

WhyServicersForeclose

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Published by: daryl56 on Sep 11, 2011
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Servicer Compensationand its Consequences
October 2009
 Why Servicers Foreclose When They Should Modify and Other Puzzles of Servicer Behavior 
NATIONAL
CONSUMER LAW
CENTER INC
——————————————
 
 Why Servicers Foreclose When They Should Modify and Other Puzzles of Servicer Behavior:Servicer Compensationand its Consequences
Written by Diane E. Thompson
Of CounselNational Consumer Law Center
ABOUT THE AUTHOR 
Diane E. Thompson is Of Counsel at the National Consumer Law Center. She writes andtrains extensively on mortgage issues, particularly credit math and loan modifications. Priorto coming to NCLC, she worked as a legal services attorney in East St. Louis, Illinois, whereshe negotiated dozens of loan modifications in the course of representing hundreds of homeowners facing foreclosure. She received her B.A. from Cornell University and her J.D.from New York University.
ABOUT THENATIONAL CONSUMER LAW CENTER 
The National Consumer Law Center
®
, a nonprofit corporation founded in 1969, assists con-sumers, advocates, and public policy makers nationwide on consumer law issues. NCLCworks toward the goal of consumer justice and fair treatment, particularly for those whosepoverty renders them powerless to demand accountability from the economic marketplace.NCLC has provided model language and testimony on numerous consumer law issues be-fore federal and state policy makers. NCLC publishes an 18-volume series of treatises onconsumer law, and a number of publications for consumers.
ACKNOWLEDGEMENTS
My colleagues at NCLC provided, as always, generous and substantive support for this piece.Carolyn Carter, John Rao, Margot Saunders, Tara Twomey, and Andrew Pizor all made sig-nificant contributions to the form and content of this paper. Thanks as well to Kevin Byersfor reading and commenting on this piece. Particular thanks to Denise Lisio for help withthe footnotes, to Tamar Malloy for work on the charts, and to Julie Gallagher for graphic de-sign. All errors remain the author’s.© 2009 National Consumer Law Center
®
 All rights reserved.7 Winthrop Square, Boston, MA 02110617-542-8010 www.consumerlaw.org
 
 TABLE OF CONTENTS
Executive SummaryIntroduction1The Rise of the Servicing Industry as a By-Product of Securitization3Securitization Contracts, Tax Rules, and Accounting StandardsDo Not Prevent Loan Modifications But Discourage SomeModications5The Only Effective Oversight of Servicers, by Credit RatingAgencies and Bond Insurers, Provides Little Incentive forLoan Modications14Servicer Income Tilts the ScalesAway from PrincipalReductions and Short Sales and Towards Short-Term RepaymentPlans, Forbearance Agreements, and Foreclosures16Servicer Expenditures Encourage Quick Foreclosures23Foreclosures vs. Modications: Which Cost a Servicer More?25Stafng28Renancing and Cure29Conclusion and Recommendations29Glossary of Terms37Notes40

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