Having trouble modifying your mortgage?  You’re not alone.  The New York Times recently reported that mortgage servicing companies have little interest in helping troubled homeowners lower their monthly payments because of the “lucrative fees” they can collect on delinquent loans. 

According to the Times article, the Obama administration’s foreclosure program, which provides a $1,000 incentive to servicers for each loan they modify (plus $1,000 a year for the next three years) is no match for the revenue generated from delinquencies and foreclosures:

“For many subprime servicers, late fees alone constitute a significant fraction of their total income and profit,” said Diane E. Thompson, a lawyer for the National Consumer Law Center, in testimony to the Senate Banking Committee this month.  “Servicers thus have an incentive to push homeowners into late payments and keep them there: if the loan pays late, the servicer is more likely to profit.”

What’s more, the article reports, some mortgage companies (Ocwen, for example) have established their own title companies in order to keep more of the revenue from foreclosures. 

Scary stuff, but kudos to the Times for shedding light on these dark dealings.

(Please don’t let this post stop you from trying to get a modification…many people have successfully lowered their mortgage payments! The loan modification and forbearance section of our website can help you get started.)

Maybe so, according to Bloomberg (via the P-I’s real estate blog):

House Financial Services Committee Chairman Barney Frank threatened to revive the mortgage “cram- down” bill that stalled in Congress this year, saying lenders aren’t being aggressive enough in modifying troubled home loans.

Cram-downs let federal judges lengthen terms, cut interest rates and reduce mortgage balances of bankrupt homeowners, even if the lender objects. Congress gave the mortgage industry every legislative tool it requested to allow them to more easily modify loans for those facing foreclosure, and the results have been below expectations, Frank said in a statement today.

“People in the servicing industry and in the broader financial industry must understand that if this last effort to produce significant modifications fails, the argument for reviving the bankruptcy option will be extremely strong, and I think there is a substantial chance that the outcome will be different,” Frank, a Massachusetts Democrat, said.

Great news, if it happens. Meanwhile, last night’s Daily Show brought us the story of one particular man who might want to take advantage of such an option:

When a debtor files for bankruptcy, the very first thing that happens is an automatic stay, which prevents creditors from attempting to collect from you while the bankruptcy process proceeds. Last year, an influential case, In re Meadows, came out of the Sixth Circuit Bankruptcy Appellate Panel saying that a payday lender can cash a post-dated check given to it by a debtor at the time of the loan, even after the debtor has filed bankruptcy. At Seattle Debt Law, we believe this decision is incorrect: cashing such a check should be considered a violation of the automatic stay. The court in that decision found that there was an exception to the automatic stay in a case where a creditor is “negotiating”—cashing—a check.

Our interest in the Meadows decision was piqued a few months ago when one of our Chapter 7 bankruptcy clients was the victim of a payday lender who took the money from her account over a month after we filed the bankruptcy case. We are currently fighting this in the bankruptcy court and hope that our judge will conclude that a post-dated check given in exchange for a payday loan is nothing more than collateral that cannot be seized during the automatic stay. Washington is not in the Sixth Circuit, so we’re hopeful that the judge will not be guided by the Meadows decision and will recognize that the action taken by the payday lender was unlawful. We will keep you up to date and informed on how the case turns out.

The bank with the stupidest name in America, Fifth Third Bank, has gone into the payday lending business. As the National Consumer Law Center reports (warning: PDF), the trend is picking up among the nation’s big banks. A bank loan with a 520% APR–sounds great!

This is certainly good news, despite the many ways the bill was watered down in the Senate. Having passed the House last month, the bill goes to conference committee now to reconcile the differences between the House and Senate versions of the bill. Hopefully the conference committee will manage to restore some of the protections the Senate stripped out of the bill.

Via Yves Smith at Naked Capitalism, here’s another reason why passing cramdown now is important: the existing loan modifications aren’t working.

Mortgages modified in the third quarter failed at a faster pace than those revised in the first, and the delinquency rate on the least risky loans doubled, signs of deteriorating credit quality, U.S. regulators said.

Loans modified in the first quarter to help borrowers keep their homes fell delinquent 41 percent of the time after eight months, and second-quarter loans had a 46 percent default rate, the Office of the Comptroller of the Currency and Office of Thrift Supervision said in a report today. Third-quarter trends “are worsening,” the agencies said.

Yves notes that most of the mods that lenders are offering today involve interest rate reductions and lengthening maturities, which aren’t as successful as mods that reduce the principal owed. Unfortunately, principal reduction is rarely offered due to the way most mortgages today are securitized (i.e., cut up into pieces and sold to far-flung investors). The only thing that is likely to reverse this trend of increasing modification failures is if bankruptcy judges are given the power to rewrite loan terms.

…and across the state, too:

In February, more than 2,300 households in Washington state declared bankruptcy, up more than 50 percent from a year ago. The most densely populated counties — King, Pierce and Snohomish — together accounted for 1,138 filings.

Check out the interactive map, too. Puget Sound is in the thick of it.

…and now the FDIC doesn’t have enough money to rescue all the banks.

WASHINGTON – The federal agency that insures bank deposits, which is asking for emergency powers to borrow up to $500 billion to take over failed banks, is facing a potential major shortfall in part because it collected no insurance premiums from most banks from 1996 to 2006.

The Federal Deposit Insurance Corporation, which insures deposits up to $250,000, tried for years to get congressional authority to collect the premiums in case of a looming crisis. But Congress believed that the fund was so well-capitalized – and that bank failures were so infrequent – that there was no need to collect the premiums for a decade, according to banking officials and analysts.

If I had a client who didn’t pay his bills for ten years, I don’t think I’d have too much luck asking the bankruptcy judge for a bailout.

In case you missed it, here’s Jon Stewart’s already-classic takedown of Rick Santelli and CNBC on last Wednesday’s episode of The Daily Show:

The cramdown bill passes the House, 234-191. All of our Western Washington representatives voted for the bill except for Dave Reichert, the only Republican in the bunch.