Another conflict occurs when the bank that services a primary mortgage is also the owner of a second lien on the same property. Resolving a troubled first mortgage generally requires a write-down of the second lien, a step that banks have been loath to take.
Banks also profit from late fees and other default-related charges assessed on borrowers. And there is an additional incentive to pile on charges, since the bigger the loan balance, the higher the fee to manage the loan. A group of prominent investors — including Freddie Mac, the Federal Reserve Bank of New York and Pimco, the world’s largest bond fund — recently accused Bank of America of fee-padding. The bank denies wrongdoing.
High default charges harm homeowners because they make it increasingly difficult to catch up on late payments and avoid foreclosure. They also disadvantage investors, because the servicer collects the charges from the foreclosure sale before the investors see any money. Everyone loses, except the bank.
Mr. Bernanke said that the regulators’ findings would be released in November. What is also needed is real enforcement — and new rules and possibly new laws — to make banks change their ways.
There is already so much public information about the fraudulent practices that the banks have been caught with, it makes me wonder what more they could possibly need to prosecute the banks for all of the issues that have already been made public. I want to know what is taking them so long? What so you think?