These days, banks seem to have difficulty in effectively modifying mortgages to help their clients who are currently burdened by their personal financial yoke caused by the recession.  To some, this inability of the banks to modify mortgages is a sign of their greed, since they are actually making more money by being unhelpful, unruly, and obstructive.

This is supported by NYT’s Peter Goodman when he said, “Many mortgage companies are reluctant to give strapped homeowners a break because the companies collect lucrative fees on delinquent loans.  Even when borrowers stop paying, mortgage companies that service the loans collect fees out of the proceeds when homes are ultimately sold in foreclosure. So the longer borrowers remain delinquent, the greater the opportunities for these mortgage companies to extract revenue — fees for insurance, appraisals, title searches and legal services.”

Goodman examines the case of Countrywide, a mortgage servicer, which refused to let Alfred Crawford sell his house for $620,000 to settle mortgage debts beyond $800,000. There is still no short-sale is being allowed, even though the latest offer on the house is now just $465,000.

Countrywide is paying itself lots of fees for the time being.  These are fees which will ultimately come out of the pockets of the investors who bought the mortgage-backed bonds which Crawford’s loan was tied to. That fee income will dry up once Countrywide allows the house to be sold.

Countrywide’s official response goes, “David Sunlin, Bank of America’s senior vice president in foreclosures and real estate management, acknowledged that Mr. Crawford’s applications for short sales had suffered from ‘a number of communication issues,’ but he said that the bank had acted in good faith. ‘We have to protect our investors’ interests,’ he said. ‘We have reputational risks involved.’”

Dan Frahm, a bank spokesman, said that Bank of America is at risk of loss along with the investors who own the first mortgage because it owned a second mortgage on the property with a balance of $85,000 and stood to “take the full losses on it.”

Obviously, Countrywide is only gouging its investors for fees, and is not protecting them at all.  And the second lien is a minor attraction: even if the house sells for $620,000, for $465,000, or for even less, that’s still going to zero.

This is rather a difficult problem to solve.  Too bad for Mr. Crawford who could have lived in his house rent-free for the past two years while the process moved on at a snail’s pace, but instead he moved out two years ago.  Too bad, only the servicers are benefitting from all this inadequacy.