Mistakes were made, servicers' trade group says (and Justice Dept. arm offers examples)
Mortgage servicers and servicing critics agree on at least one point: The industry has made mistakes, and things should change. What's in dispute is the scope and type of problems -- and how often misbehavior plays a role.
David H. Stevens, president and chief executive of the Mortgage Bankers Association, a trade group whose members include servicers, talked with me for this week's story on the state of servicing and said he's supportive of the idea of nationwide mortgage servicing standards -- which seems likely to happen under the guidance of the new Consumer Financial Protection Bureau.
"Coming out with a common set of standards that applies to everybody, ideally applies to all states, would create a system in this country that would have integrity and protect consumers and be enforceable, and that's what we're lacking right now," said Stevens, former commissioner of the Federal Housing Administration. (He expressed concern about competing sets of rules, some in place, some in the works.)
On the subject of servicing problems, he said "mistakes were made, and they were made in a variety of different ways." He said servicers were caught off guard and overwhelmed by the extent of the housing crisis, though he said some companies were more adept than others.
The problems Stevens is talking about are the ones struggling borrowers are well acquainted with by now. He rattled off a list "from lack of trained resources, to being able to properly explain these new [assistance] programs that had been created, to operational challenges of handing off a borrower who calls a call center to someone knowledgeable about underwriting guidelines."
That all falls into the broad category of foreclosure-prevention assistance -- loan modifications, short sales and the like. Situations such as Lutherville doctor Anca Safta's -- where a servicer sent an intent-to-foreclose notice because it wasn't properly recognizing her on-time payments -- "would be an extreme rarity in the process," Stevens said. Loan-modification issues are "the more common challenges we have heard," he said.
Homeowner advocates say problems such as foreclosing on the wrong people, locking people out of their homes and throwing away their possessions when they weren't behind on any mortgage or weren't yet to the point of foreclosure auction, and charging inappropriate fees are more common than the industry acknowledges.
The U.S. Trustee Program, the arm of the Justice Department charged with protecting the integrity of the bankruptcy process, was involved with the investigation that led to a $108 million settlement with Countrywide last year over allegations about fee-gouging before it was acquired by Bank of America.
In November the trustees launched a "concentrated enforcement effort" of bankruptcy cases in locations across the country to closely look at mortgage servicers' filings. Their findings so far suggest "continued, widespread problems," said Jane Limprecht, a spokeswoman for the U.S. Trustee Program.
"To obtain more information, we have filed hundreds of motions for discovery," she said in an email. "In response, servicers have filed more than 200 motions to quash our discovery requests."
Limprecht said the enforcement effort grew out of work on individual cases. "We soon saw that there were broader, long-standing problems that had victimized many homeowners," she said in the email.
What they're looking for include inaccuracies in amounts servicers claim are owed, impermissible charges and insufficient proof.
I asked for examples. Here's what Limprecht provided:
A servicer filed a $30,000 arrearage claim primarily for missed payments. The amount listed for each missed payment exceeded the monthly amount due on the note, suggesting that the missed payment included an escrow payment. There was, however, a separate $370 escrow shortage charge already included on the claim. Further, the servicer claimed other charges, including $1,600 for "foreclosure fees," for which it did not provide an invoice or dates explaining the charges. The servicer amended its claim twice and both times calculated the missed payments differently than in the original proof of claim. The supporting documentation attached to the first amended claim was for a property that was unrelated to the debtors.A servicer amended its claim four times to add a variety of charges, such as appraisal fees, bankruptcy attorney fees, foreclosure fees, property inspection fees, and interest on escrow. No invoices for the charges or dates for when the charges were incurred were provided. On the most recent proof of claim, the undocumented charges exceeded $6,000.
A claim was filed for $52,042.58. After the debtor objected, the claim was amended to reduce the arrearage amount to $3,156. ...
A servicer obtained forced-place insurance even though the debtors had their own insurance. The servicer then sought relief from stay [in order to foreclose], asserting an arrearage based on the erroneous insurance charges.
No supporting documentation was included for $10,260.50 in "prior service" fees.
After a debtor's chapter 13 plan was confirmed, the lender doubled the escrow payment, increasing the monthly payment by about one-half. The debtor could not afford the new payment and the lender filed a motion for relief from stay to foreclose.
The links above were provided by me for people in need of definitions for escrow and forced-place (also known as force-placed or lender-placed) insurance.
There's been a long-running argument over fees and charges, and whether servicers are purposely squeezing homeowners to drum up more money for themselves rather than helping people who could otherwise avoid foreclosure.
The Mortgage Bankers Association says in a white paper about servicing that it's a "myth" that companies make money from late fees, considering the expenses they shoulder when a borrower is in default. Servicers have no financial incentive to foreclose because they then lose the monthly stream of income they received from managing the loan, the group says.
"I recognize there are mistakes made, but without question, it does nothing but harm to the servicer as well as the family," said Stevens, the trade group's CEO. "Servicers lose on all counts when they make mistakes, and the fees do not offset the expenses associated.”
Congress has heard testimony about servicer compensation that suggests it is indeed playing a role in the way the companies are handling delinquent borrowers' requests for modifications, short sales and other foreclosure alternatives. Laurie Goodman of Amherst Securities Group testified in May to a subcommittee of the Senate Banking Committee that servicers have conflicts of interest that harm both homeowners and mortgage investors, including this one:
The servicer often owns a share in companies that [provide] ancillary services during the foreclosure process, and [charge] above‐market rates on such. Entities that provide services during the foreclosure process that are possibly owned by servicers include force‐placed insurance providers and property preservation companies. (These companies provide maintenance services as well as property inspection services.) Even when a servicer is not affiliated with the company providing the service, they often mark up the fees considerably.What is the consequence of affiliates of the servicer charging above market fees? Such fees are added to the delinquent amount of the loan, making it much harder for a borrower to become current. Moreover, when a loan is liquidated, the severity on the loan (the percentage of the current loan amount lost in the foreclosure/liquidation process) will be much higher, to the detriment of the investor(s) in that mortgage. It also tends to make servicers less inclined to resolve the loan through a short sale, as fee income that will be earned in the interim (as the loan winds its way through a lengthy foreclosure process) is quite attractive.
More on force-placed insurance tomorrow.
Categories: Mortgage servicing, Mortgages, The foreclosure mess
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Comments
Your headline is an understatement of the of the reality of servicers are doing. They are dreadful. :-)
Daily I see the decay of the servicers' foreclosed inventory as well as their reluctance to bring properties on the books. Couple that with the also awful performance on the front end, modification, etc, they are so far underwater.
If you can approve a new mortgage in a few weeks why can you make a decision on a loan modification in 60 days? What is the difference, income-ability to pay, credit-willingness to pay and property value- appraisal? The only add on for a modifications is documentation for loss of income.
National standards would be a breath of fresh air to this industry. At least they would have a common goal instead of the internal lender policy, net never. :-)
Posted by: Thom22 | July 6, 2011 9:31 PM
I was evidently the most gullable person in the world to think banks as BANK oF America were honest. I thank the person for the above article but is mistated in truth several times. BOA tried putting lender placed insurance on our loan on 3 different occasions erroneously. You speak so easily about mistakes but when they keep doing it to benefit themselves something is just like it seems CORRUPT. Honestly I would like for someone to tell me exactly how many vacation homes and Rolls Royces one man or MAJOR recipient of the "TRICKLE DOWN" could perhaps need while other hard working "HONEST" citizens are struggling just to keep from being ran out of their own homes by the same people that stole all of our tax money to begin with. Bailout, my ass. I was informed the top 16 hedge fund folks in the US last year posted profits of 1 BULLION FOR EACH ONE OF THE 16 greedy souls. How many jobs could that have paid for as oppose to how many lines of coke these folks snif from models butts? IM fed up along with many others and I dont think the good folks are going to put up with much more of these dog waggers and manipulators that take advantage of decent honest folks just because they think they can. We all know and realize these same folks would steal from a blind man with no more integrity than what they use to steal from the rest of us. Look out BANK OF AMERICA ITS ON THE WAY!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
Posted by: LM DeMarcus | July 7, 2011 1:26 AM
$1600 for a Foreclosure in attorney fees is actually pretty good. Usually attorney fees consist of more than one thing, i.e. apprasial, filing fees, late fees, newspaper charges, auctioner charges and are usually itemized if requested. For Proof of Claim purposes it is easier to lump them into one claim & provide an itemized sheet as documentation. I've seen fees go up to $50K plus, with multiple foreclosure dates, resets, loan modifications, ect. Each time the Foreclosure attorney has to reset the date more fees charged to the home owner because of the charges from the newspaper & the advertising.
The Federal government also allows a max charge for the different motions & proofs of claims in Bankruptcy & Foreclosure that an attorney may charge. The foreclosure attorneys do not work for free, most usually charge a flat fee that the government allows or the lending companies mandate.
I understand the need to save a house, but most people don't remember is that each time the foreclosure process is delayed that is more money the homeowner may need to fork out. Its not always the attorneys, it can be the lender, I've seen lenders not be able to proof fees so they weren't listed and I've seen lenders charge crazy numbers and get away with it. Sometime the hardest part of the foreclosure or bankruptcy is the documentation, either the lender doesn't have it or the home owner doesn't have the documentation. Blame does go both ways... so I guess the big lesson is to always always always have great record keeping for all your documents.
Posted by: pigtown girl | July 7, 2011 10:42 AM
Thanks for sharing your experience, pigtown girl. In the case of the $1,600 charge, what's at issue is that it's unclear what "foreclosure fees" meant. Servicers can (and, as far as I know, must) specify if a fee is for attorneys.
Keeping all your documentation is definitely excellent advice.
Posted by: Jamie Smith Hopkins | July 7, 2011 11:18 AM
A copy of the Foreclosure bill is required to be sent to the home owner, if the home owner doesn't open the mail that is their problem. I've heard of people not opening their mail for over two months.
The bill is usually itemized and shows all those break down. Mostly in my experiencem, the attorney was not allowed to have the foreclosure fees listed w/o having the itemized bill showing the fees included .i.e advertising, auctioners, attny's, escrow, apprasial, ect.... even if the property was in another state. A copy of the FCL bill was reequired to be sent to the bankruptcy attorney incase additional documentation was required.
Posted by: pigtown girl | July 7, 2011 11:58 AM
In this particular case, the U.S. Trustee Program is saying the amount wasn't explained, itemized, dated, etc., in the filing made to the bankruptcy court. So whether the homeowner in question opened his or her mail in a timely fashion would seem to be immaterial -- though it's a really bad idea to let your mail stack up for months just because you don't want to see what's inside. (I've heard of that happening, too.)
A study done several years ago by a law school professor found lots of problems with fees claimed by servicers during the bankruptcy process, including lack of documentation and explanation of what the fees were for.
Posted by: Jamie Smith Hopkins | July 7, 2011 12:12 PM
I've seen all that too Jamie. The assignments were always a killer when the companies sold accounts, or when a company purchased a different company. Two examples are when when Option One Puchased the American Home Financing or when MetLife Home Loans purchased First Horizon HomeLoans dba First Tennessee. Most of the Bankruptcy Judges wanted a copy of the assignment showing this account was part of the purchasing agreement, it took weeks to have a piece of paper that should have already been completed and forward to the necessary parties.
There is no such question as a dumb question when it comes to fees, they are something that needs to be asked.
I do understand why they ask for the documentation, it takes only one bad apple or one bad attorney in some cases to give everyone a bad name and cause problems. In the effort to save money the larger companies move things around all the time, change policies & procedures, and a lot of the communication is broken down & lost, this creates the problems of the owner making the payment to the right hand of the lender and then the left hand of the lender says your late because the right hand didn't forward over the payment.
Although sometimes I do believe it is the person on the other side of the file too at the lender.. example, one person might get denied on disability payments by the case worker but submit the same exact claim to the person one cubicle over and its granted without even a second glance. Same thing happens w/ the lenders & who does the loan mods.
Posted by: Pigtown girl | July 7, 2011 1:46 PM