Lots of people with distressed properties have one of those adjustable rate mortgages that started out with interest only, or less--marketed as "Smart Loans," or "Pick-a-Payment Loans--that will soon reset, if they haven't already. Why are these so problematic?

In most cases, these loans were packaged, fractionalized and sold off to who knows how many hedge funds. That means the servicer on these loans doesn't own it, has no skin in the game.

And it also means the servicer has very little incentive to modify the loan for the borrower. Worse, there are built-in disincentives to GRANT a modification, which is why they do what appears to be dumb.

I mean, you'd think they'd want to modify rather than let the home go into foreclosure and get zip, right? But that's not the case. They get their servicing fees no matter what, and if the home goes into foreclosure, even more fees get tacked on and the servicer gets paid after the house goes to auction.

In fact, if they modify a loan, they run a risk not only of reduced fees, but the loan going to another servicer in some instances.

Here's what to watch out for if you try to get a loan modification on one of these loans: The servicer will try to tack on however many payments you've missed, plus more servicing fees, onto the loan. That's because they get paid on a formula of the principal balance. With this kind of a "modification," the borrower's loan amount not only increases, but so might the payment!

Unbelievable, but it's happening. It's unclear how this situation affects short sales, but it would be interesting to learn how many short sales are delayed in process because of servicer fees. Same for foreclosures. I doubt we'll ever know, though.