Poor servicing leading to borrower 'death spiral'

by Kelli Rogers31 May 2013
Though the industry is seeing recovery, the issue of poor servicing that saw many borrowers tossed from their homes has yet to be addressed. 
 
Larry Muck, executive director of the American Association of Private Lenders, said one of the major problems has been and continues to be the disconnect between origination, securitization and servicing of loans.
 
“Many of the people that were foreclosed upon would have been able to stay in their homes if servicers had sufficient incentive to perform what has come to be known as ‘high touch,’ or what we always used to call community lending,” Muck said.
 
Instead, those that encountered life events that caused them to slow their payments were slapped with huge insurance premiums and late fees that compounded. The current servicing model does not allow for humanity or grace to enter the equation,and servicers find more profit in foreclosure than in accounting for performing loans, Muck said. 
 
Rick Sharga, executive vice president of Carrington, said thisnotion of servicers wanting to enter into the foreclosure process is overstated. 
 

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