There used to be consequences to committing a crime, back in the day. In the mid 1300s, for instance, King Henry III would have those guilty (which didn't mean then what it means today) of high treason to be hanged, drawn and quartered. The victims' bodies were chopped into pieces, not actually pulled apart by wild horses, which I guess was just going too far, even then. Though I imagine the fear of wild horses would have put a serious damper on crime.
I can't imagine what it would feel like to be drawn and quartered, but I have a feeling mortgage servicers can. They're being pulled in all kinds of directions right now and I suspect that more than a few of them will be pulled apart in the process.
The government doesn't want people kicked out of their homes. They tend to vote against incumbents, it turns out. So it offers a few bucks to servicers to delay foreclosure and punishes those who don't work hard enough to find alternatives for their borrowers. With one or two more government programs, the current litter of lawmakers should be able to keep most voters in their homes until after the November elections.
The government doesn't want investors to lose money because it's gone about as far as it can out on the bailout limb. So, it puts pressure on servicers to move more quickly to get borrowers into loans that will allow them to start making payments again (after years of living rent free in some cases), despite the fact that the short-term cash flow comes at the expense of lost principal. But again, if the cash stays flowing until after the elections, the fallout won't be so bad for incumbents.
Meanwhile, the government wants to give consumers more of a voice and more protection when it comes to the home buying process, so it's moving forward on its plans to set up a new agency for consumer protection. I'm guessing those bureaucrats are not going to buddy up to servicers, at least not in the short term. Raise enough dust as you move in the new furniture and voters will believe that you're really doing something to benefit them.
Now, Fannie Mae reports that it will begin cracking down on servicers who don't take action quickly enough on delinquent loans
that are languishing in their portfolios. The GCE (government-controlled enterprise—didn't we once call that an agency or bureau?) says it is considering financial penalties for servicers it decides are guilty of poor performance. Come to think of it, perhaps guilt still is a government-assigned condition suffered by those who do not please it, at least for some.
Of course, life is just as hard for those servicers who work extra hard to get borrowers to pay. Ask American Home Mortgage Servicing
-- just as soon as they get off the phone with the Texas attorney general, who is suing them for allegedly using illegal debt collection tactics and “improperly misleading struggling homeowners.” I guess you can't tell them you're going to foreclose on them if you know the government won't really let you.
At the beginning of the downturn, I admit that I was guilty of looking at the nation's mortgage loan servicers with some envy. The market was turning in their direction and after years of scraping by off tiny margins before sending the monthly payments upstream, servicers were finally going to get a chance to make some real money.
Don't get me wrong. I know that a few million late fees a month is not the same as millions of foreclosures and families out of their homes. It is true that this downturn is not the same as those we've seen before and perhaps it's not quite right to have mortgage servicers dancing around in the streets like Wall Street traders did during the short-sale extravaganza. But REO does not make servicers rich, especially in an environment where buyers have no jobs and lenders have no flexibility in their underwriting standards.
I'm just saying, I'm glad I'm not in the servicing business right now.
Rick Grant is veteran journalist covering mortgage technology and the financial industry.
Follow him on Twitter: @NYRickGrant