Concord – Last year, 35 homeowners filed complaints about their mortgage servicers with the state Banking Department, more than twice the number filed in 2006, according to Banking Commissioner Peter Hildreth. Most of the complaints alleged misapplication of payments or charges.
But the reality is that his department cannot help many New Hampshire consumers with such problems, Hildreth acknowledged.
That's because federal laws and recent court decisions have exempted national banks and their operating subsidiaries from state regulation, he explained. "Under those decisions, the states cannot do anything that interferes with the business of banking -- and they interpret the business of banking very broadly," he said.
Given the ongoing mortgage crisis, Hildreth contends Congress should change those laws. "I think that states are better able to help consumers with issues like this," he said. "It's that simple."
The state banking department currently licenses 39 mortgage servicers. National banks are regulated by federal agencies, including the Office of the Comptroller of the Currency, the Department of Housing and Urban Development, and the Federal Trade Commission.
Of the 35 consumer complaints about servicing filed with the Banking Department last year, 12 are still unresolved. Five were resolved in favor of the consumers, who received restitution; the companies were found to be within their rights in 11 cases; and seven were referred elsewhere because the state had no jurisdiction, Hildreth said.
Last year, Hildreth ordered all mortgage companies regulated by the state, including servicers, to appoint someone to work with consumers who have problem loans. "But if it's a national bank or an operating subsidiary," he warned, "you're pretty much on your own."
There's another problem for homeowners here. Like other entities regulated by the state Banking Department, mortgage companies are exempt from the Consumer Protection Act. And attorneys say that makes it difficult for consumers to sue mortgage servicers if they feel they've been unfairly treated.
Walter Maroney is the former chief of consumer protection at the Attorney General's Office; he's now in private practice in Manchester. He believes mortgage companies should be brought back under consumer protection laws here, in light of the current mortgage crisis.
"One entire avenue of well-established relief that exists for people in virtually every other state in the union has been cut off here," Maroney said. "And that's bad public policy."
Manchester attorney Edward O'Brien said he gets on average one call a week from consumers having trouble with mortgage servicers. Most complain about payments that haven't been credited on time, force-placed insurance, and what he called "fictitious fees."
But in most cases, O'Brien said, "I tell them I can't help them at all because of the state of the law up here."
"The problem in New Hampshire is that all the entities that are typically the entities that abuse consumers ... have gotten themselves exempted from the Consumer Protection Act," O'Brien said.
"Unless you've gotten a bad haircut or the birthday cake you bought flopped, you can't use the Consumer Protection Act."
These attorneys say the Legislature should take another look at that exemption. Losing your house to foreclosure is "the biggest and most traumatizing and damaging thing that, short of the death of a loved one, can happen to someone," Maroney said.
"It's a huge, huge financial disaster which sets people back for years and years," he said. "And if people go into bankruptcy to try to avoid this, they end up with a credit rating that's now in the seventh circle of hell."
Katherine Porter, a University of Iowa associate professor of law who has investigated the mortgage servicing industry, noted government entities trying to address the mortgage crisis have focused almost entirely on predatory lending.
"Congress and other regulators have been slow to recognize the servicing piece to the story," she said. "But you can have a perfectly fine loan that was originated fairly, and then you can have abusive servicing that can drive you into foreclosure."
In a research paper last November, Porter warned "mistakes or misbehavior by mortgage servicers undermine America's homeownership policies for all families trying to buy a home."