The servicers of mortgage loans have more to gain by foreclosing rather than following any other route. Money is collected in the form of late fees and this makes them tempt the borrowers saying that modification is on the way thus delaying them and collecting fees.

There is as a strong argument that the flat fees charged by servicers should be changed and it should be structured according to the cases being handled. Circumstances have changed and considering the voluminous nature of work the flat fee system is not working causing the servicers to look for other avenues for augmenting their incomes.

The Acting Director of Federal Housing Finance Agency Edward DeMarco instructed Fannie Mae and Freddie Mac last 18th January to team up with HUD to mull over other options to flat servicing fees. This approach was appreciated by the Treasury Department but Sheila Bair of FDIC was of the opinion that change should be expedited.

She is keen to introduce new standards for mortgages involving risk retention as laid down by the Dodd-Frank Act. This is putting her up against the mortgage lobby. She is getting the support of consumer groups as well as the state regulators including Richard H. Neiman of New York Banking.

The Regulators put more action in their probing of the mortgage industry after the robo-signing leaks surfaced wherein millions of documents had been admittedly signed without proper checks. The papers were riddled with errors and some documents were missing or not completed observed Thomas Adams of Paykin Kriet & Adams (formerly an executive with Ambac Financial Group and FGIC group).

Promissory notes were found to be missing or were not done properly as per legal rules. It is crucial that while changing hands the chain of titles should be properly recorded and endorsed. Adams said, “They didn’t bother to document all the travelling. To foreclose they had to fill in all the steps that happened three years earlier”.

The Federal Reserve and the FDIC have begun investigations against the lenders and servicers since last September. The foreclosure rage had erupted three years previously.

All of the state attorneys general teamed up to start their joint investigations. They have said that their plans are to address the process of loan modification by reaching settlements with the important servicers. They may take steps to put on hold foreclosures while the borrowers are looking for modification and to set up a fund for the compensation who have been wrongly victimized by foreclosure.