Mortgage Servicing Fraud
occurs post loan origination when mortgage servicers use false statements and book-keeping entries, fabricated assignments, forged signatures and utter counterfeit intangible Notes to take a homeowner's property and equity.
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Proposals on Servicers Are Only a First Step 
Washington Post - February 16, 2008
By Jack Guttentag

In my last two articles, I examined the Federal Reserve Board's proposals for tightening mortgage underwriting requirements and for limiting mortgage broker charges to borrowers. These are long-standing regulatory concerns.

In contrast, the Fed seems to have discovered mortgage servicing abuses only recently. The regulatory proposals are weak, but they are a good first step.

One proposal would require that servicers credit payments on the days payments are received. Another would require servicers to provide accurate payoff statements within a reasonable time to borrowers who intend to pay off their loans. Both are fair, clear and not onerous for the lender.

A third proposal would prohibit servicers from imposing late fees or delinquency charges when scheduled payments are received on time but do not include previous late charges. This rule would eliminate the practice of "pyramiding late fees," in which servicers continue to charge late fees until all previous late fees have been paid.

But the proposal does not cover a worse type of pyramiding. When a scheduled payment is received on time but the escrow payment is short, the practice is to place the entire payment in a suspense account, charge the borrower a late fee and send a delinquency notice to the credit bureaus.

If the servicer does not send out monthly statements, which many do not, the borrower will be in the dark. The next month's regular mortgage payment will also be deposited into the suspense account, and the borrower will incur a second late charge and a second 30-day delinquency report. At this point, the account may go to collection, and the borrower may find himself dunned for a list of fees, with failure to pay possibly resulting in foreclosure.

The Fed's proposed rule against pyramiding late fees should be broadened to require that monthly payments received on time be credited when only escrow portions are deficient.

Another regulatory proposal "would require a servicer to provide to a consumer upon request a schedule of all specific fees and charges that may be imposed in connection with the servicing of the consumer's account . . . and an explanation of each." The fees and charges covered include those of third parties that are passed on to borrowers.

Because servicing does not involve third-party fees until a loan goes into collection, that proposal is relevant mainly to borrowers who get behind in their payments and are referred to their servicers' collection departments. At that point, a borrower will be billed for such things as a broker's price opinion, property inspection and legal services.

Borrowers in trouble need protection, but requiring that their servicers provide them with a list of charges is not going to help when there is no standard that such charges must meet. What could help is mandatory disclosure combined with a rule that servicers cannot mark up the prices charged by third parties or profit from them in any way.

Conspicuous by omission from this proposal is that information be provided to all borrowers, so they can keep themselves out of trouble. The single most important step that regulators could take to curb servicing abuses is to require monthly statements that show everything that has transpired during the month -- and that are comprehensible as well as comprehensive.

I mentioned borrowers whose monthly payments are not credited because the escrow portions of their payments are deficient. If a borrower does not receive a monthly statement that shows this, the problem can snowball until the borrower ends up in collection.

Consider as well the Fed's proposal to require that servicers credit payments on the day they are received. Who is going to monitor the roughly 50 million home-mortgage payments that are made every month to assure compliance? The only ones who possibly can are the 50 million borrowers, who know when their payments were made and have a financial interest in receiving timely credit. But without access to monthly statements, borrowers are severely handicapped.

The Fed also ignores other important abuses:

  • Some servicers cripple the ability of borrowers to refinance profitably by not reporting good payment records to the credit bureaus. Servicers should be required to report payment histories on all accounts.

  • Some servicers purchase servicing contracts and convert the mortgages to different interest-accrual schedules if the notes do not explicitly prevent it. If a borrower did not negotiate such a schedule at origination, a later conversion is unconscionable. Such conversions should be prohibited.

  • Some servicers cover up abusive practices by selling the servicing to another firm without forwarding evidence of the abuses -- that is, the prior servicing record. When servicing is transferred, the purchasing firm should be required to obtain and hold the complete file.

    Jack Guttentag is professor of finance emeritus at the Wharton School of the University of Pennsylvania. He can be contacted through his Web site,

    Copyright 2008 Jack Guttentag

    Quote 0 0

    Damn, I could swear that I’ve heard most of Professor Guttentag’s suggestions someplace before, oh well, maybe someone can help me out.  Nonetheless, the good professor is sure on target, even if his suggestions have been mentioned before.  

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    Way To Go,
    You are so right!  Been reading Mortgage Professor for years now and yes, he always sounds like just more of the same.  Normally I would have just hit that ever so helpful IGNORE button but this one did seem timely.  These tips have been posted on this forum many times over so they would be more than familiar to those of us who have read or unfortunately lived them.
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    Sorry, I was being facetious, his suggestions are right out of the Curry Settlement, which came down the pike many moons ago.  

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    Ditto! Many of us have been pushing for the exact thing he's now writing about (monthly statements)...for years!
    ...but he's a Professor so who knows, maybe he will get the respect and ear of those that have the power to finally do something about it?!?!
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    Hmmm....Doesn't H.R. 3915 potentially cover a fair portion of this as well ?

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    ...but he's a Professor so who knows, maybe he will get the respect and ear of those that have the power to finally do something about it?!?!

    Sometimes it is most difficult to be heard if you are a borrower.  People
    hear that borrower word and already hear the words of the industry instead of what we are saying.

    How dumb do you have to be to take out a mortgage that you cannot afford?

    That's not the point of mortgage servicing fraud and trying to train these
    people that there is quite a distinction between Mortgage Servicing Fraud
    and Predatory Lending seems akin to trying to make a silk purse from a
    pig's ear.

    It seems a lot of industry talking heads are least having something to say
    to about Predatory Lending although and as always attribute it to borrowers taking out too much loan that they can't afford to repay.

    Again, none of the Presidential wanna be's has anything much to say about
    Predatory Mortgage Servicing.

    If you have paid timely?  If you have not shorted a payment?  If you have not bounced a check?  If you pay your own taxes and insurance?  All the servicer has to do is credit your account properly but they don't and set
    up the scam and run it on a borrower that has done nothing wrong?

    How in the world can they believe that you took out too much loan?

    It is still a crap shoot to vote for any of the candidates since they don't know *&$$ about Mortgage Servicing Fraud. 

    If you are going to look past their voting records and try to determine who
    will be the least likely to hurt Mortgage Servicing Fraud victims, my guess
    would be to look at who the candidate surrounds themselves with.

    Who would be the advisors to the President? 

    Some of Bush's advisors have been really off the wall.  I am sure both sides make these mistakes.

    We seem to be stuck on Hillary v Obama.

    What does McCain have to say about the mortgage mess?

    From on McCain.  Dec. 2007

  • He did not say what steps he would support, but campaign adviser Douglas Holtz-Eakin, a senior fellow at the Peterson Institute, has said there's likely a need to pass legislation, "at least to modernize the FHA and improve licensing standards for mortgage brokers."
  • None of them meet our minimal needs.


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    Dee wrote:

    What does McCain have to say about the mortgage mess?

    He has the father of predatory lending on board as his economic advisor.

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