Mortgage Servicing Industry Reform Needed In Effort To Address Foreclosure Crisis

Ms. Margot Saunders, Counsel, for the National Consumer Law Center testified Wednesday before the House Financial Services Committee Subcommittee on Financial Institutions and Consumer Credit calling for reform in the mortgage finance industry.(1)

Included among the industry players that "need reforming" are those in the mortgage servicing industry, on whom Ms. Saunders offers this observation:

• Mortgage servicers are the link between mortgage borrowers and the mortgage owners. [...] Despite the important functions of mortgage servicers, borrowers have few market mechanisms to employ to ensure that their needs are met. Rather, in the interest of maximizing profits, servicers have engaged in a laundry list of bad behaviors, which has considerably exacerbated foreclosure rates. The most common abuses in loan servicing include misapplication of payments, use of suspense accounts, failure to make timely escrow disbursements, and cascading fees imposed upon homeowners in default. These abuses exist because there are market incentives rather than deterrents for this type of behavior. Any new regulation of the mortgage marketplace must account for these dynamics and move beyond them.

Go here for Ms. Saunders' entire prepared testimony to Congress (Her views on the reform of the mortgage servicing industry are found on pp. 11-13).

Go here, go here, go here, and go here for posts on questionable mortgage servicing practices.

Thanks to Mike Dillon at GetDShirtz.com for the heads-up on the testimony.

(1) The title of the hearing was Mortgage Lending Reform: A Comprehensive Review of the American Mortgage System. Click Here To View Archived Webcast. QuestionableServicingTacticsSigma