Mortgage servicers earn fees by collecting monthly payments from home owners. They also supervise the payment of real estate taxes and property insurance and provide workout services when a loan defaults.

In a case of a $100,000 subprime loan – with a 7.2 per cent interest rate – a servicer would buy the collection rights on the loan from the lender for about $700. Assuming the loan is interest-only, the servicer would collect a monthly payment from the borrower of $600 and keep $40, remitting the rest either to the lender or, in the case of loans backing securities, to a trustee, who distributes the money to bondholders. After expenses, the servicer would earn about $300 a year.

Provided the borrower does not pay off the loan for at least 28 months, the servicer would make money.

As part of a government-sponsored programme, servicers are also eligible to receive $1,500 for each mortgage modification.

Unlike a mortgage lender or an owner of a bond backed by mortgages, servicers can make money even when a home goes into foreclosure. For that reason, the National Consumer Law Center, in a report published last year, criticised servicers for having an economic interest to foreclose.

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