Recently I assisted two separate couples whose stories are so remarkably similar that it suggests more than coincidence. I was right. There is something going on.
Both are working couples with children, and each has a good education. Both wives were hospitalized, had lengthy absences from work, and both fell behind on their mortgage payments.
That's bad enough. But what their mortgage service company did to them next is where our story really begins. This should be required reading for everyone with a mortgage.
Sub-prime lending is really most of us. It is a category of borrowers with a broad range of circumstances. We are the people who are simply unable to prove that we really don't need the money. The self-employed, business owners and those with less than perfect credit comprise this group. Sub-prime casts a wide net and is responsible for the record number of Americans who own homes.
As one might expect, this category of loans will have a higher rate of delinquencies. You would think, therefore, that these loans would be less profitable, but this group of borrowers pay higher than prime rates. The real money, as many servicing companies are discovering, is in the very lucrative business of targeting the most vulnerable borrowers and squeezing every last penny out of them before throwing them out in the street.
This trend has the potential to make predatory lending seem generous. Servicing, the collecting and distributing the mortgage payments, is the land of opportunity.
Who is in a better position to exploit a defaulting borrower than a person posing as someone who wants to help? And it's all part of a scam planned well in advance.
Companies that are actually collection agencies are acquiring the servicing rights to sub-prime loans, not to process checks, but to put the borrower over a barrel and then offer more and more expensive "solutions." True, they don't want your house, but they do want every spare dime you can fork over. They don't care one way or the other what happens to your home; they're just the servicing company.
Servicing companies have gone from passive collectors and distributors of other people's money to active, predatory, hard-money lenders targeting sub-prime borrowers.
They might not even wait for you to get into trouble, but simply insist you are late.
Scam 1. We take so long to process our mail it could really cost you.
Most mortgages have a grace period of sorts. If your payment is due on the first, a late charge won't be imposed until the fifteenth. But your payment is technically late the day after the due date.
And that is when the telemarketers of the servicing firm begin to call. The purpose of this call is to scare you into believing that, "due to extended internal processing times and the unpredictability of mail delivery," you are going to incur a late fee. To avoid that hefty late charge, they suggest stopping payment on your check and allowing them to take the money directly from your bank account.
Do not be tempted. It will certainly cost you at least for the stop payment on the check, and wouldn't you know it, the mortgage servicer can also charge you a fee for this.
Scam 2. Please try our easy pay program.
This is the hi-tech version of number three. Your bank statement shows the payment came out on time, but the mortgage servicer doesn't credit the payment to your account for two weeks. Late fees begin to mount up while you send copies of your bank statements showing the withdrawals. Nonetheless, they insist you are late, and late on the late fees, and monies start to compound.
Scam 3. We didn't get your payment and you can't prove we did.
You send your check and they cash it. But no matter how many cancelled checks you trot in front of them, they deny receiving payment. See above.
Scam 4. We're here to help in your time of need.
And if you do actually fall behind on your payments, they will sniff out money you didn't even know you had and wring it out of you.
They will try to get as much money from you as they possibly can. First as a sizable down payment and then as high a monthly make-up payment as you'll agree to. They take all of your cash and leave you with a payment that might be 35 percent higher than the one you already couldn't make.
In the process you'll be asked to sign away many of your rights and you do it because they said they care.
They exploit you at your most vulnerable time, because they know that most people would do anything not to lose their home. They intimidate you into suspending judgment and going along out of fear and embarrassment.
And why? Greed. They get paid a small fee to process payments, but when a payment is missed, they can charge whatever fees they want and keep all of the money. They are nothing more than shakedown artists operating in a largely unregulated arena, who have figured out a way to wring millions of dollars out of nervous consumers.
And because they can. You didn't choose your servicing company, they chose you. They chose you because they know all about you and know that you will make a good target. You can't fire them, quit them or take your business elsewhere. Once they begin to destroy your credit, you couldn't get another loan to pay them back even if you wanted to. And even if you refinance, there is no guarantee you won't wind up back with the same servicer.
Lest you doubt their motives, it is a well known business axiom that you reward the behavior you want.
Read the remarks of the president of Ocwen Loan Servicing, Ronald M. Faris, after a $1.8 million judgment was awarded to a customer. "We make sure our employees are aligned with this effort by paying them incentive bonuses when they succeed in keeping borrowers in their homes."
Now that sounds noble if not a bit self-serving. But the incentive isn't paid for keeping a borrower in their home, it's a percentage of the money collected. Abuse of borrowers is their business plan and the longer they keep them in their home, the more money they can collect.
Right now all of the focus is on the predatory loan-makers not the loan servicers. There isn't any help coming from lawmakers. As a matter of fact, industry lobbyists crafted the legislation that makes it all perfectly legal. Therefore, you need to protect yourselves.
- Start to make your mortgage payment early. This should help keep you under the radar screen. Once someone targets you, they will be calling.
- Don't allow your homeowners insurance policy to lapse. If the mortgage servicer asks for proof of insurance, provide it through every channel available and document it. Print out and keep email, keep the fax verification and send every piece of mail "return receipt requested." And make sure they know you are doing it. Make the email confirmation part of your fax, for example.
- Never talk to them on the phone. Make them put everything in writing.
- Do not permit any sort of electronic transfer of funds. You want a paper trail. Buy and use check writing software that allows you to update your bank account online and regularly monitor check clearing activity.
- Never sign anything without a professional review. Forbearance agreements aren't for you, they are written by the servicer and designed to strip you of your rights and every last penny.
- Consider paying any late fees and contesting them after the fact. Withholding payment from the mortgage servicer in a dispute will give them just the excuse they need to deduct it from your next payment leaving you in arrears on your mortgage payment and late every month thereafter. The late fees will skyrocket as your credit plummets leaving you no way out.
If the industry doesn't act soon, everyone in real estate and mortgage lending will be tainted by the consequences of this astonishing display of greed and deception. When this scam is finally exposed in the mainstream media, it will make the Enron fraud look benign. Published: March 29, 2007