RISMEDIA, April 6, 2010—It’s been more than three years since I wrote an article about mortgage servicing fraud. I’m a little older, but it’s still alive and thriving. Since then, we’ve had a complete meltdown of our financial system, a thorough looting of the American tax payer, the destruction of the middle class, and just about every other indicator of quality of life has tanked alarmingly.
At the same time, financial intermediaries were able to reap huge profits, receive TARP funds to which they were not entitled and didn’t need because they had no real losses, and funneled it all into bonuses that catapulted number crunchers to oil Sheikdom wealth.
This didn’t happen by circumstance, but is instead part of a large and well-organized fraud wherein all of the evidence points directly back to “too big to fail institutions” that are, apparently, too big to prosecute as well.
Financial intermediaries targeted the large pools of cash in pension and hedge funds. They promised absolute safety for a slightly higher interest rate than comparably safe investments.
They pointed out that residential mortgage foreclosures were extremely rare at between 1-2%.
They failed to mention that those were just foreclosures. Default rates are something different. Nor did they mention their plan to create a menu of guaranteed to default loans—predatory loans.
And, they left out the part about how easy it would be to increase defaults if one controlled the servicing. At present, there are a record 13-plus percent of loans which are not current. Coincidence?
The financial intermediary who had no actual loss also bought credit default swaps for themselves at multiple times the loan amount.
There is an inherent conflict of interest in this scenario. The financial intermediaries, who actually have no risk, stand to gain enormously by collecting on the default swaps.
As if debt securitization and betting on failure weren’t lucrative enough, part of the plan included gaining every possible means of getting more of the borrower’s money in fees.
But even more important, by controlling servicing, they have the ability to actually control the exact number of defaults within specific pools by simply pushing people into default.
The terms of the default swaps were dictated by the financial intermediaries.
To collect on the default swaps, which the financial intermediaries created and designed, just like the onerous terms of your mortgage, only a certain percentage of defaults need to occur within a pool.
However, if they could control the performance of the underlying loans, they could manipulate the defaults in the pool. The best way to do that is to service the loan.
In addition to putting borrowers into default at will, they make vast untold sums of money before the property is foreclosed.
And once they target you, they cannot be stopped. That unlocks a wealth of money-making opportunities. 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.
Servicing, the collecting and distributing of 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.
All the moves are choreographed to stymie, befuddle, and eventually beat down the homeowner until they give up in despair. Thirty states allow foreclosures to occur without any judicial review or any examination of the circumstaces, the evidence or the veracity.
They comb credit reports looking for changes in the patterns of payments. If they see more use of credit cards, late payments, grocery charges, types of stores and purchases; there antennas go up and they smell a victim in the making. If they suspect you might be running low on cash, they know that you can’t put up much of a fight, particularly in a non judicial foreclosure state.
Do not believe that they exist simply to process checks, but rather 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 to keep you in default and 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.
All of the dialogue is finally honed and well-scripted. They will insist that they did not receive your payment, even though they did. They will say that the homeowner is without adequate insurance. They will claim they paid your property taxes, even though they cannot prove it.
Here are some of the tricks thy use to push borrowers into default.
“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.
“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.
“Please try our easy pay program.”
This is the hi-tech version of above. 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.
“You didn’t pay your property taxes, so we did.”
Here again, they will deny your cancelled check or credit card receipt, and without producing any documentation, will insist that they, not you, paid the property taxes and they are entitled to establish an “escrow account .”
“You do not have insurance.”
Or, you do not have enough insurance. We bought some for you. Now, they will exercise their right to open an “escrow account.”
“For your benefit, we’ve established an escrow account.”
The escrow account is where the real financial trickery takes place. No matter how many times you ask, you will never see an accurate accounting of how they arrived at the amount they claim that you owe them.
“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% to 50% higher.
In the process, you’ll be asked to sign away many of your rights and you’ll 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, if you put up little or no resistance, they will take you all the way to the courthouse steps.
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 keep the perfect mix of defaults in the pools.
They get away with all of this 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 while stringing the borrower along. Abuse of borrowers is their business plan and the longer they keep you in default, 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. Therefore, you need to protect yourselves.
1. Start to make your mortgage payment early. This should help keep you under the radar screen. Once someone targets you, they will be calling.
2. Don’t allow your homeowner’s 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. This sends a message that you might not be the easiest of targets.
3. Never talk to them on the phone. Make them put everything in writing.
4. 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.
5. 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.
6. 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.
Next week—Predatory Mortgage Servicing Fraud Part Two–Real Horror Stories of Real People
George W. Mantor is known as “The Real Estate Professor” for his consumer education efforts including a long-running radio program, monthly workshop series, public appearances, and frequent articles.
During a career dating back to 1978, he has amassed experience in new home and resale residential real estate, resort marketing and commercial and investment property.
Prior to starting his own real estate and mortgage brokerage in 1992, he had been Director of Training and Customer Service for Great Western Real Estate. In addition, he has served on virtually every real estate committee, including a term as a Director of the California Association of REALTORS.
George is a nationally respected authority on all areas of real estate and is frequently quoted in a wide range of publications. He is an oft invited guest of Fox Business Network and for many years, he was the host of “Keepin’ It Real…Real talk about the real thing, real estate” on KCEO radio.
The Real Estate Professional includes him in “a directory of the Nation’s outstanding authors, columnists, and speakers. His articles have also recently appeared in Real Estate Finance, The Real Estate Professional, National Real Estate Investor, Broker Agent News, and Realty Times. His blog is http://www.realtown.com/gwmantor/blog.