No incentive for banks to renegotiate mortgages

I see no reason or incentive for banks to renegotiate mortgages. One is that the big banks that bought up the failed banks have essentially already taken the losses by buying the failed bank's assets for pennies on the dollar. Also, thanks to the Treasury dept. changing tax laws on their own, the big banks could write off the losses of the failed banks' losses on their taxes. Also, why would the banks renegotiate any mortgages and take a principal hit when it is very likely that the US government will come to everyone's rescue with more bailouts, assistance programs, etc.? The US government is printing free money and the new administration has promised to continue to do so - why not wait for more free money to be handed out?

Another area is mortgage service companies. The banks tend to not handle the mortgages directly, but instead outsource the work by using mortgage service companies. These companies have no incentive as to whether the house is foreclosed on or not - they get payed the same.

But any fraud, mistakes, or violations made during the origination of the mortgage loan have been quickly covered up through the mortgage securitization process. Loans are packaged into mortgage-backed securities (MBS) and sold to holders which then use trustees to administer the loans. The trustees can not be held accountable for many claims that homeowners have against the company that originated the mortgage.

Trustees, although they may administer the loans, do not lose money when a property goes into foreclosure, as they are paid their fees in any event. The holders of the mortgage securities will lose money as homeowners stop making payments, but one property or another going into foreclosure is a small matter when even one mortgage-backed security may be comprised of hundreds of different loans spread throughout the country. This illustrates the concept of spreading risk around, but it also makes it less worthwhile for MBS holders to care about one or another borrower.

Even further removed from the origination company, MBS holders, and trustees are the mortgage servicing companies, which are hired to collect payments and perform the day-to-day operations necessary to administer the loan. These companies will also be compensated regardless of the success or failure of the loan, and so have little incentive to help homeowners apply for loan modifications or otherwise save their homes.

http://ezinearticles.com/?In-Foreclosure,-Loan-Servicing-Companies-Lose-More-Money-by-Helping-Homeowners&id=1769257