Wrong Incentives: Income vs. “The Right Thing to Do”

NYT: Lucrative Fees May Deter Efforts to Alter 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.

Bank of America disputed that characterization. “To think that somehow
or other we would jeopardize investor relationships and customer
relationships for the very small incremental income we would receive by
delaying seems ludicrous,” said Robert V. James, the bank’s senior vice
president for mortgage operations and insurance. “It’s not the right
thing to do.”

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