Archive for August 2nd, 2009

Chase “services” its mortgage customers but good

Sunday, August 2nd, 2009

Full story here from DebtWire. Never underestimate the ability of the banks to find a way to shtup their customers or investors. Tony Sporano looks like a freakin’ saint at this point.

“JPMorgan Chase, one of the first mega banks to champion the national home loan modification effort, has struck a sour chord with some investors over the risk of moral hazard posed by certain loan modifications.

Chase Mortgage, as servicer of several Washington Mutual option ARM securitizations it inherited last year in acquiring WAMU, has in several cases modified borrower loan payments to a rate that essentially equals its unusually high servicing fee, according to an analysis by Debtwire ABS. Simultaneously, Chase is cutting off the cash flow to the trust that owns the mortgage. In some cases, Chase is collecting more than half of a borrower’s monthly payment as its fee.

When asked about the loan modifications, a Chase spokesperson said, ”Given the volumes in the current modification environment, situations are arising that require servicers to review and address modification-related transactional issues. Chase is currently reviewing these transactions.”

Typically a loan servicer – the entity that collects monthly payments and interfaces with borrowers on behalf of mortgage owners and/or MBS lenders – charges between 0.25% and 0.50% annually. So if a borrower’s interest rate is 7.25% per year on a USD 100,000 loan, the servicer may be receiving USD 250 per year in fees (assuming a 25 basis point fee and no amortization), with the remaining USD 7,000 of annual interest going to the holder of the mortgage note.

But for the loans in question, servicing fees range as high as 2%-3%. In some cases, Chase, or Washington Mutual previously, modified interest rates on the loans down to 3%, while keeping the servicing fee flat. This essentially strips cash flow from the mortgage note holders and diverts it to the servicer, a tactic that doesn’t sit well with owners of the impacted bonds. (more…)