Are you thinking of taking out a mortgage from a big bank any time soon? If you do, you better ask them who will really end up servicing your loan. Over the last few years, it’s come to light that many mortgages all across the U.S. were being serviced by third-party companies that had little regard for the law (and even less regard for the interests of borrowers).
A recent report by the Consumer Financial Protection Bureau (CFPB) detailed how third-party mortgage servicer Ocwen was required to pay $2 billion in relief to “underwater borrowers.” The reason for the hefty penalty? Ocwen was using deceptive tactics such as purposefully misapplying payments, charging bogus fees to borrowers, and robo-signing foreclosure documents. As a result, more than 185,000 borrowers were faced with foreclosure and countless more met with undue financial hardship.
Robo-signing was among the worst of these practices. What it meant was that when a loan servicer sent over foreclosure documents to the borrower’s bank, these documents were being left unreviewed and signed blind by bank employees. There were reports of people sitting at a desk all day signing one document after another without evaluating (or even reading) a single thing in it. Of course, without the legally-required review, many errors would remain unnoticed and unreported. Thankfully, the repercussions of robo-signing were ultimately felt by the loan servicers (in the form of hefty fines like the ones mentioned above) but not before countless borrowers were harmed as well.
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Since then, unfair and deceptive mortgage lending practices have been under the microscope and a CNN article makes it clear that regulators are concerned about finding similar behavior demonstrated by other non bank servicers.
Other predatory behaviors have included:
- offering misleading or false information in response to complaints
- creating and implementing illegal servicing shortcuts
- charging unauthorized fees
- improperly denying loan modifications
- denying information about foreclosure alternatives
The good news? Already, robo-signing has been put to a halt. Now, regulators are taking measures to implement new rules and protections for the consumer.
These new rules are intended to make the mortgage game a much safer one. While most of the changes are protections that you might assume were already in place (fair fees and transparent servicing information) this is a significant step in the right direction. With the added heat and attention of the CFPB, these shady mortgage lending practices are diminishing and the hope will be to eradicate them entirely.
Ideally, methods of paying a mortgage will become more transparent and created with the borrower’s best interest in mind. Until then, those in repayment should be diligent in following up on any suspicious terms or fees and go out of their way to keep a strong line of contact and presence in the process.
For those considering a mortgage, it’s worth asking your lender who will be servicing your loan and also what to expect in the repayment period. You can ask how often the lender sells loans to other companies (this is quite common today). If they do this for most loans, they may not be able to tell you which company will be servicing your loan, but it’s still worth asking. Have them go over the expected scenario of payment and also what would happen should you miss a payment or be hit by a fee.
And finally, make sure that you realize the responsibility of taking out a mortgage and create a realistic repayment schedule that fits within your financial circumstances. While the aforementioned behaviors of the mortgage lenders is undeniably predatory, keep your wits about you by creating a plan that you understand and can confidently stick to. It will help you to combat any costly challenges in the years ahead.
Image Credit: JefferyTurner