Frustration with the loan modification process has been felt at all levels. But there have been few attempts to fix key problems. The New York Times takes a look at a central issue: The conflict of interest at the main mortgage servicers, Bank of America, JPMorgan Chase and Wells Fargo.

These banks' mortgage servicing units take in payments from individual mortgage holders and send the payments out to whomever owns the loans, usually big pensions and other institutions these days. When defaults and delinquencies are low, this all works fine.

But these days, one conflict is glaring. The mortgage service companies in many cases own a second loan-home equity or second mortgage--held by the same homeowner. They have every reason to want to keep payments on their loans flowing, even if payments on the first mortgage have stopped. The reform effort has yet to address this.

Treasury "never forced the second-lien holders who service troubled primary mortgages to reduce the amount they are owed by borrowers, even though such a move would give them a better shot at keeping their homes." And that has really gummed up the works in many cases. One Congressman aims to bar mortgage services from owning secondary loans on the mortgages they service.

For more:
- here's the article

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