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Latest news on loan modification

This week, the Obama administration summoned mortgage company executives to Washington to demand they move faster to lower payments for homeowners sliding toward foreclosure. Treasury officials called on the companies to hire and train more people quickly to field applications for relief.

But industry insiders and legal experts say the limited capacity of mortgage companies is not the primary factor impeding the government's $75 billion program to prevent foreclosures. Instead, it is that many mortgage companies are reluctant to give strapped homeowners a break because the companies collect lucrative fees on delinquent 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.

Rich Miller, a governance project manager at Countrywide Financial and Bank of America before he left in January, said Bank of America had been reluctant to modify loans, which hurt the bottom line. The company has been waiting and hoping the economy will improve and delinquent customers will resume making payments, he said.

That's the short-term strategy, said Mr. Miller, who oversaw training programs at Countrywide, which was bought by Bank of America. He now works as an industry consultant.

Mortgage companies, some of which are affiliated with the nation's largest banks, are paid to manage pools of loans owned by investors.

The rules by which servicers are reimbursed for expenses may provide a perverse incentive to foreclose rather than modify, concluded a recent paper published by the Federal Reserve Bank of Boston.

But experts say the administration's incentives are often outweighed by the benefits of collecting fees from delinquency, and then more fees through the sale of homes in foreclosure.

If they do a loan modification, they get a few shekels from the government, said David Dickey, who led a mortgage sales team at Countrywide and Bank of America, leaving in March to start his own mortgage advisory firm, National Home Loan Advocates. By contrast, he said, the road to foreclosure is lined with fees, especially if it is prolonged. There's all sorts of things behind the scenes, he said.

Ultimately, the benefits of delinquency erode incentives for mortgage companies to dispose of troubled loans quickly, say experts, allowing distressed houses to decay and fall in value-a fact of little interest to the servicer.

At the end of the day, it doesn't matter what the house sells for, because they don't take that loss,said Ms. Golant.Meanwhile, they are collecting all these fees.