Mortgage servicing companies have a financial incentive NOT to modify home loans. Felix Salmon found this nugget from a NYT article:
...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.
Barry Ritholtz outlined the perverse financial incentives that led to this mess and this one is an incentive to prolong the mess.
We need a much better financial system but that's unlikely to happen when Wall Street execs are still getting billions in bonuses despite the failings of their own companies:
Some U.S. bank pay "unmoored" from performance: Cuomo
Thu Jul 30, 2009 7:22pm EDT
By Grant McCool
NEW YORK (Reuters) - Bonuses paid to executives at nine banks that received U.S. government bailout money in 2008 were greater than net income at some of the banks, the office of New York Attorney General Andrew Cuomo said on Thursday.
Cuomo, in a report on months of investigation into compensation paid by the banks, said employee pay "has become unmoored from the banks' financial performance."
The report said bonuses for Goldman Sachs Group Inc, Morgan Stanley and JPMorgan Chase & Co were "substantially greater" than the banks' net income.
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