Common Abusive Mortgage Servicing Practices

A recent article by Mortgage Professor Jack Guttentag appearing in Inman News Globe comments on some of the types of abuses mortgage servicing companies have been accused of engaging in. Among the alleged abuses referred to in the article include:

1. Pyramiding Late Fees: where the servicer continues to charge late fees until all prior late fees have been paid,
2. Pyramiding Resulting from Escrow Payment Shortage: When the scheduled payment is received on time but the escrow payment is short, the practice is to place the entire payment in a suspense account, to charge the borrower a late fee, and to send a delinquency notice to the credit bureaus,
3. Failure To Provide Monthly Statements: If the servicer does not send out monthly statements, the borrower will be in the dark. When a scheduled payment is placed in a suspense account due to an escrow shortage, the next month's regular mortgage payment will also be deposited into the suspense account, and the borrower incurs a second late charge and a second 30-day delinquency report. At this point, the account may go to collections, and the borrower will suddenly find himself dunned for a laundry list of fees, with failure to pay possibly resulting in foreclosure,
4. Mark-up of Price For Cost Of Services Provided By 3rd Party Vendors: Servicers squeeze extra profitability from their servicing operations by profiting from services provided by 3rd parties,
5. Failure To Report Good Payment Histories To Credit Bureaus: Some servicers cripple the ability of borrowers to refinance profitably by not reporting good payment records to the credit bureaus,
6. Unilateral Conversion Of Mortgage To Simple Interest: Some servicers purchase servicing contracts and unilaterally convert the mortgages to simple interest if the note does not explicitly prevent it without borrower approval,
7. "Abuse Cover-Up" By Selling The Servicing Contract: Some servicers cover up abusive practices by selling the servicing to another firm without forwarding evidence of the abuses -- the prior servicing record.

For the article, see Monthly statements would eliminate loan servicing fraud (if link expires, try here).

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