One of the biggest boons of the mortgage servicing industry was the securitization of mortgages beginning in the 1970s. With lenders selling off newly originated loans, the servicing industry grew as the investors in mortgages did not want to deal with the administration of collecting payments, dealing with refinances and title issues, and foreclosing on homes when necessary.
Until the 1970s when securitizing mortgages after origination became more common, there were few banks that sold their loans into the secondary market. Instead, lenders held onto the loans they made and collected the interest. If they sold the loans at all, the original lender would often retain the right to collect and apply the payments, in effect becoming the servicers themselves.
All of this began to change, however, during the late 1980s, and the growth of the mortgage servicing industry was a direct result of the government's response to the Savings and Loan crisis of the late 1980s and early 1990s. These institutions had made so many bad loans that the federal government created a whole new bureaucracy to deal with the fallout and dispose of properties.
The Resolution Trust Corporation was created in 1989 by the first Bush administration to sort out the assets of failed Savings and Loans and begin to sell them to investors. However, one decision that the RTC made when selling the assets of these bankruptcy banks made a huge impact on the structure of the mortgage industry and almost single-handedly created the servicing industry as it is today.
This decision was to sell the loan portfolios of the S&Ls and the rights to service these loans separately. Until this point, there was really no specialization in the mortgage lending industry for companies just to retain the servicing rights on loans. But with the RTC selling rights to collect payments separately from the loan portfolios themselves, the mortgage servicing industry was given a huge shot in the arm.
In fact, the predatory nature of the mortgage servicing industry, where servicers are encouraged to add more fees and charges to a loan, including driving homeowners into foreclosure, was created by the Resolution Trust Corporation. Although the industry has done a poor job of policing itself and attempting to reduce the incentives for abuse, the government is responsible for the frauds perpetrated on homeowners.
Today, mortgages are bought and sold numerous times, and the servicing rights are also transferred from one company to another. But while the servicer's name may change, the abuse practices always remain the same. Borrowers with more equity are routinely targeted for forced insurance, misplaced payments, missed property tax payments, and other coercive practices.
Unfortunately, too many homeowners are relying on the government to fix the problems in the housing market. But the last time the feds attempted to do this, by creating the mortgage servicing industry's practices, the end result was homeowners being taken advantage of and pushed into foreclosure. Without the RTC's pricing model for servicers, fewer homeowners would be losing their homes now.
Nick writes for the ForeclosureFish website, which gives homeowners the advice and resources they need to
avoid foreclosure on their own and fight back against the bank's lawsuit. The site describes numerous methods to save a house, including foreclosure loans, deed in lieu, repayment plans, stopping a foreclosure sale, bankruptcy, and more. Visit the site on the web to read more about how you can avoid foreclosure and eviction, repair your credit, and establish a long term financial plan once a financial crisis is over: http://www.foreclosurefish.net/
