Call it what you will, the borrower bailout/rescue/whatever does not seem to be working. Foreclosures are still on the rise along with defaults and sad stories. And while those numbers go up, the economy continues to worsen.

This is not doing the banks any good, either. Banks lose a ton of money every time they have to foreclose a mortgage. If borrowers could stay in the home, but for a lower payment that will still pay off the house eventually, everybody wins.

So why aren’t lenders doing it?

There are a couple of reasons.

One, loan servicers are the ones who consumers generally communicate with, since they are the ones sending the bills. But loan servicers don’t have any real incentive to refinance, since, like a lot of companies, their income is based on generating fees. They get a portion of the receivables, but every late fee is like a bonus. They love homeowners who are behind, because those homeowners pay those fees for as long as they can. And servicers are also the ones who handle the foreclosures, where they get paid again.

Two, securitization. Loans are not held by one lender. Not for long, anyway. Most mortgage loans are bundled up into a big security. In other words, investors basically buy shares of the bundle of mortgage loans, betting that the value of their share(s) will rise (or fall, if you can short sell securities).

What that means is that there may be hundreds of “owners” of any given mortgage. There is no decision-maker for the borrower to negotiate with, just the legal foreclosure process. So when we blame the “lender,” who are we really blaming? There are potentially thousands of lenders for every loan.

So in the end, the loans just keep going into foreclosure, and it is a rare borrower who gets to rework their mortgage.

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