Do Big Banks, Mortgage Companies & Loan Servicers Really Lose Big When Subprime Mortgages Are Foreclosed?

According to this blurb in a recent New York Times story, the answer is probably not as bad as they would like everyone to believe:

• But on the billions of dollars worth of mortgage loans that have been sold to investors [through investment trusts owning pools of residential mortgages] in the last few years, it is not the banks or lenders like Countrywide that are hit with big losses when homes go into foreclosure. It is the sea of faceless investors who own pieces of these trusts. Also, under the trusts’ pooling and servicing agreements, Countrywide and other servicers typically recoup any costs they cover in the foreclosure process, such as legal and appraisal fees.

The real losers appear to be those who invested money (insurance companies, mutual funds, municipal & corporate pension funds, private individuals, etc.) in what Wall Street refers to as Residential Mortgage Backed Securities.

For more, including a story on the problems financially strapped homeowners are reportedly facing when trying to work out their troubled mortgages with large mortgage servicing companies like Countrywide Financial Corporation, see Can These Mortgages Be Saved? (if link expired, try here).

See also, Bay Area Complaints Pile Up Against Countrywide. (CBS 5 - San Francisco)

-----------------------

There is currently a lawsuit against a mortgage servicing company containing allegations which, if true, provides support for the proposition that homeowners aren't the only ones that have cause for concern about allegedly unfair or predatory treatment from mortgage servicers. Mortgage holders such as banks, trusts that own pools of mortgages, investors who own Residential Mortgage Backed Securities (RMBS), and others owning direct or indirect interests in residential mortgages that are serviced by mortgage servicing companies may also have reason for concern about possible unfair practices.

The allegations, if true, go a long way towards explaining why it seems like mortgage servicing companies actually seem to want to drive homeowners into foreclosure.

For a copy of the lawsuit, see Ellington Credit Fund, Ltd. vs. Select Portfolio, Inc., et al. (Plaintiff's First Amended Complaint - 19 counts - 52 pages, 2.35 MB approx.) - available online courtesy of Michael Dillon and GetDShirtz.com.

For a prior post that highlights a couple of the allegations in this lawsuit, see Fairbanks Capital Screwing Mortgage Lender Too, Says Lawsuit.

Go here , go here , and go here for posts on questionable mortgage servicing practices. questionable mortgage servicing practices tactics yak