More On Mortgage Loan Servicers & Their Screw-Ups

Mike Konczal writes in the blog, Rortybomb, on how mortgage loan servicing companies fit into the robosigner foreclosure mess. An excerpt:

• [T]he first rule of mortgage lending is that you don’t foreclose. And the second rule of mortgage lending is that you don’t foreclose. I’ll let Lewis Ranieri, who created the mortgage-backed security in the 1980s, tell you:
  
  “The cardinal principle in the mortgage crisis is a very old one. You are almost always better off restructuring a loan in a crisis with a borrower than going to a foreclosure. In the past that was never at issue because the loan was always in the hands of someone acting as a fudiciary. The bank, or someone like a bank owned them, and they always exercised their best judgement and their interest. The problem now with the size of securitization and so many loans are not in the hands of a portfolio lender but in a security where structurally nobody is acting as the fiduciary.”

• In the past you had Jimmy Stewart banks. The mortgages were kept on the books of the bank. You had someone who you could go to and renegotiate your mortgage. With mortgage-backed securities, the handling of payments and working-out of troubles moved to servicers. If you are learning about this crisis for the first time, understanding what is broken here is very important.

For more, see:

• Foreclosure Fraud For Dummies, 3: Why Are Servicers So Bad At Their Job?,
• A Look at How Unregulated Servicers Are, and the Consequences for Leaving this Crisis.