Smith herself has written why:
But servicers have lots of reasons not to go there. First, they get lots of fees upon foreclosure and have organized streamlined processes to make it a profitable activity for them. Second, they are obligated to keep advancing principal and interest when borrowers default. Technically, they can stop when the borrower looks irredeemable, but in practice, they keep advancing P&I until they reach the mortgage balance. So they also are driven to foreclose to recover P&I advances. Third, they are just not set up to do mods. Not only do their contracts not allow for them to collect fees to do mods, but for a mod to have any hopes of success, you need to do some borrower assessment. Servicers are factories, highly routinized, so doing anything on a one-to-one basis is difficult given their operating parameters.
Doesn’t it seem like the fact that MBS investors want servicers to modify mortgages but the servicers won’t do it is a much bigger story than what we’ve gotten from the mainstream press?
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