Bank Servicing Fee (Based on Principal Amount) Kills Loan Modification efforts

The banks blame the actions of the loan servicing companies – forgetting to mention they own the loan servicing companies. They blame paperwork problems, forgetting to mention that their servicing fee is a percentage of the principle amount of the loan – so any principal reduction reduces their income, even though the investors that own the loan would be better off getting a hit of a small reduction in principal via loan modification compared to the much larger hit they will have later from the foreclosure.

The government needs to force a break through past this self-interest barrier that is the banks’ servicing fee being based on the loan principal amount – can we say transaction pricing?

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