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Bank Conflicts of Interest on Foreclosures and Modifications

Arizona Advocates and Action

Arizona Advocates and Action

New Orleans My god, pinch me!  Unbelievably the august New York Times in its editorial today has bellied up to the right side of the bar in pointing out the obvious and long noted (including by me!) conflicts of interests enjoyed by banks in the foreclosure game where they often pretend to be chicken, but are usually fox.  The Times being the Times can’t quite get it all right.  They put the horns on the Federal Reserve as a sleep-at-the-switch regulator of this mischief and mess, when the Treasury Department and the Administration both deserve at least equal billing of this horror movie showing at homes all around the country.

But let’s not quibble and count our small blessings when they come:

That is a big reason that the Obama administration’s antiforeclosure effort, with its voluntary participation by banks, has fallen so short.

Here is the background. The big banks — Bank of America, JPMorgan Chase, Citibank, Wells Fargo — service most of the nation’s home mortgages for investors who own the loans. They are paid a fee by the investors and also make money from fees on delinquent loans.

Servicers are obligated to manage the loans in the best interest of the investors. That means modifying a troubled loan, if reduced payments would bring in more money over time than a foreclosure. Or foreclosing if a borrower cannot make the payments on a modified loan.

If only it worked that way in practice.

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