Who Should Have Been Regulating Mortgage Servicers?

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Wednesday, October 13, 2010 at 10:37 am

The unfolding foreclosure fraud crisis centers on mortgage servicers, companies that collect and organize mortgage payments on behalf of banks. (Many are actually subsidiaries of big financial-service companies, like J.P. Morgan Chase.) When a homeowner misses payments, the servicers are meant to carefully review their financial statements and to notify them before moving on with foreclosure.

But regulations on servicers are thin. Servicers can, Andy Kroll noted earlier this year, change their charges and fees without notifying homeowners in advance. The companies routinely mess up families’ paperwork. And often they benefit from the confusion — tacking late-payment or wrong-payment fees onto customers’ bills.

Servicers have existed for decades, but have remained obscure — to the press, to the public and even to the regulators meant to be overseeing them. The federal regulators in charge of mortgage servicers — including the Office of the Comptroller of the Currency and the Federal Trade Commission, though each in a limited capacity — generally have not taken action when they break laws. In fact, though the Housing and Urban Development Department receives thousands of complaints a year, Washington hardly ever reacts. Instead, state governments are responsible for regulation. And that means a patchwork quilt of responses. Some states, like Ohio, go after the companies aggressively. Others don’t.

The good news is that this will soon change. Already, the Consumer Financial Protection Bureau technically has the mandate to oversee and write rules for mortgage servicers, though it is not staffed or set up yet. If the foreclosure fraud crisis is big enough, the new Office of Financial Research and Financial Stability Oversight Council might become involved. And last week, Rep. Brad Miller (D-N.C.) said of Congress, “We now have resolution authority that we can take out for a spin.”

Plus, Congress and the White House are now paying attention. Though the administration is using kid gloves, not pushing for new solutions or calling for a national moratorium on foreclosures, the Hill is more active. Sens. Richard Shelby (R-Ala.) and Chris Dodd (D-Conn.) have called for hearings when Congress comes back into session, after the November elections. Other offices I spoke with, including Sen. Sherrod Brown’s (D-Ohio), said they are considering new legislation or hearings to look into the fraud crisis. In the meantime, about 40 state attorneys general are investigating or initiating cases related to the crisis.

Follow Annie Lowrey on Twitter


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23 Comments

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Nicklas
Comment posted October 13, 2010 @ 3:36 pm

People don't realize but banks still give out mortgages that will not get paid back. Here is a story about 3 people who got mortgages AFTER the 2008 meltdown, and these people have no hope of affording their houses:

http://onthefrontlinesofamericanswarwithdebt.wordpress.com/


Andrsmorris
Comment posted October 13, 2010 @ 3:56 pm

since our attorney corresponded with our servicing company, suddenly things have started looking a lot different. we were not in foreclosure but certainly they were certainly taking us on a wild ride. they've changed our rate suddenly. but that don't take care of the money they've stolen from us over the years. they've done everything except physically touched us. no matter what they try to cover up now, they must answer. they all must answer.


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GM
Comment posted October 13, 2010 @ 6:33 pm

I live in California. I, like millions of other Americans, have a tough time dealing with my servicer (Aurora Loan Services – who was part of Lehman Brothers). I've been in foreclosure for 24 months now. Back in 2008, (before I stopped making payments) I called them and let them know that I would be having trouble making my mortgage payment (wife's hours were reduced and I was on the verge of being laid-off). They said the only way they could help me was to stop making payments.. so I did.

About a year (last September) after I stopped making payments, I was approved for HAMP. I make six months of trial payments (about $1,000 less than regular mortgage payment). However, during the whole time, they were looking for a reason to deny me the permanent modification. Finally, within a week after making my sixth & last trial payment, they denied me a permanent modification (this was this past march). I tried to save my property from foreclosure. Even on occasion calling Aurora with a HOPE Counselor on the line with me. Aurora wasn't willing to budge and wanted to go through with the foreclosure. They even said we didn't qualify for HAMP, which the HOPE counselor said wasn't true. So to save my property, I resorted to filing chapter 13 bankruptcy.

As part of the bankruptcy proceedings, I received a statement from Aurora showing the past due amount. This amount included fees/costs associated with the foreclosure and a total of my past due mortgage. One thing that was really shocking was that they did not deduct my trial payments from the past due mortgage. I received a Notice from Aurora's Lawyers stating that as part of the HAMP Trial Payment Agreement, Aurora was not required to subtract any payments made under this agreement if a permanent modification was not granted. So essentially, I made $8,000 in trial payments and they do not have to apply it to my mortgage. THEY GET TO KEEP IT.

As you can imagine, I am appalled to hear this. 1) I'm wondering if it is true… 2) I'm wondering if this is happening to other homeowners who were approved for a HAMP Trial Payment, but denied the permanent modification.

Also, from what I've been able to gather, it appears that the servicer is guaranteed the servicing fees. These fees come out of the funds that are received at auction, or paid by the investor when the home is foreclosed. So, if a homeowner is in foreclosure and not able to bring the account current, it's in the servicers BEST INTEREST TO FORECLOSED since they are guaranteed their servicing fees.

This who foreclosure thing is a mess. It's funny how lenders at one time were willing to give loans to anyone with a heartbeat and in some cases w/o a heartbeat. Now, they are taking homes aways from Families in a heartbeat w/o any remorse. This is having a huge impact on the economy because it creates uncertainty.

Case in point:

My family needs a washer and dryer.

We need to fix our broken pool pump,

Can't swim in the pool cause it is green, so we won't buy pool toys,

We need to buy/lease a new car or need to fix a broken transmission on our other car,

We would like to re-landscape the front of our house.

The list can go on and on on things we need, would like to buy and can afford. But, since we are trying to save our property and are uncertain of the outcome, we refuse to spend any money on anything. We will do anything and everything to prevent the bank from taking it from us, including getting layers and filing bankruptcy.

There is so much uncertainty in the housing/foreclosure mess today. The economy will never get better until uncertainty is removed.


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carl johnson
Comment posted October 26, 2010 @ 5:38 pm

Aurora Loan Services is about as corrupt as they come,maybe someday someone will see this,hopefully the attorneys general will be the ones to discover this.I have been dealing with these scavengers for three years now.,I dont know what is the bigger joke Aurora Loan Services or the HAMP program.Anyone interested in doing something about Aurora,need only to go on the internet to see how corrupt they are.


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