Top 10 Abuses by the Mortgage Servicing Industry
There is a nationwide epidemic of foreclosure abuses and unacceptable mortgage servicing practices.
Despite billions of dollars in fines and settlements involving mortgage servicers and lenders, the industry continues to mislead and abuse homeowners, according to the federal government. TOO BIG TO FAIL?
The Consumer Financial Protection Bureau released a report this month that found nearly 50% of the more than 187,800 complaints filed with the agency had to do with mortgage problems. The majority of these complaints concerned loan servicing, modifications, and foreclosure activity by mortgage servicers.
Here are the Top 10 Abuses by the Mortgage Servicing Industry
“Robo-signing” is one type of mortgage fraud that has received a lot of press, but loan companies find many ways to rush foreclosures or generate fees at homeowners’ expense. Here, in no particular order, are many of the top loan servicing abuses.
1. Misapplied payments: Even when payments are made on time, the company mistakenly rejects the check or applies it to the wrong account. The result is unjustified late fees and often other penalties as well. For homeowners, misapplied payments are a huge headache; for loan servicers, misapplied payments mean a chance for more income.
2. Illegal fees: It’s not legal to charge the homeowner when the loan company pays for property monitoring or price opinions from brokers, but it happens.
3. Two-faced “help”: Many homeowners who are actively working with their mortgage servicer to work out their loan are surprised to learn that the company is also actively pursuing foreclosure. (This is called “dual tracking.”)
4. Blocked refinances: Loan servicers don’t like to lose the steady income flowing from their mortgages, so it’s in their best interests to stall attempts to refinance with a different company. Some loan servicers have refused to provide loan payoff information, preventing refinances and even home sales.
5. Squelched legal rights: Loan companies often include “waivers” with their loan modifications, which essentially say, “If you accept this modification, you give up your right to pursue any legal actions against us no matter what egregious acts we commit.”
6. Botched taxes and insurance: Many mortgages have an escrow account for taxes and insurance that the loan company manages—or not. When the company fails to pay these expenses on time, the homeowner is stuck with the penalties. And some companies require expensive hazard insurance (to cover damage from accidents, storms, etc.) even when insurance is already in place.
7. Zipped lips (no communication): When loan servicers believe a homeowner is late on a mortgage, it’s important to send a notice. Sometimes they do, sometimes they don’t.
8. Whirlwind foreclosures: Each state has laws governing the foreclosure process and when a lender can initiate foreclosure. In the rush to foreclose, some loan companies ignore key steps required by law.
9. Crazy foreclosures: This one is hard to believe, but it happens: the loan servicer begins foreclosure proceedings even though the homeowner is current on the mortgage.
10. “Robo-signing” and other fraud: Loan companies fail to review key documents or falsify court documents used to evict—often because the companies haven’t kept accurate records of ownership, payments and escrow accounts that would enable legal foreclosures.
A recent report from the Consumer Financial Protection Bureau focused on the risks to consumers in their dealings with their mortgage company. Mortgage companies- or servicers- are the entities that are responsible for the processing of your mortgage payments, as opposed to those entities that own the loan.
In the report, the CFPB found that common problems still exist even after the financial crisis and recession in 2008, including improper processing of payments, improper servicing transfers, and numerous problems with various aspects of loss mitigation.
VIDEO: $25B Settlement Reached Over Foreclosure Abuses
A landmark $25 billion settlement with the nation’s top mortgage lenders was hailed by government officials as long-overdue relief for victims of foreclosure abuses.
But consumer advocates countered that far too few people will benefit?