As much as I’ve seen a lot of financial services industry misconduct at close range, sometimes even a cynic like me is not prepared for how bad things can be. And mortgage abuse is turning out to be one of those areas.
I’ve been in contact for over the last six months with attorneys involved in foreclosure defense. Unlike the foreclosure mills, which seem to coin money, the attorneys on this front are either laboring pro bono or making considerably less than they could in other lines of work. They also can back up their views with depositions and trial transcripts.
One thing they stress is that a significant number of their clients facing foreclosure has made every single mortgage payment. . Read that again.
Now how can that be? How can that square with the banks’ assertion that in every instance, their foreclosures were warranted, that the borrower was hopelessly behind?
It’s actually very simple. It’s called servicing errors and fraud. And whether by mistake or design, when a borrower gets caught in the servicer hall of mirrors of compounding fees and charges, there is no way to appeal and pretty much no way out.
Let’s look at how this begins. A payment is credited as being late. It might actually legitimately be late, the borrower might have neglected to send it in on time. Or the bank might have been slow to process it. That might be simple queuing meets bad controls, or it might be deliberate. Servicers have been found to delay posting checks to incur late fees. Unless the borrower incurs the cost of sending mail via a service that provides proof of time of delivery, the bank can always claim the payment arrived late.
Let’s say the late fee is $75. It will be charged against the next month’s payment. But the borrower doesn’t know that he owes more that month. He gets a mortgage coupon and sends his regular payment in.
Now the servicer starts playing the sort of tricks practiced elsewhere in retail banking. Under the terms of the loan and Federal law, monthy payments are to be applied to principal and interest first, fees second. But the bank applies it to fees first. This makes his second month come up short. He gets charged a fee for insufficiency, and perhaps a late fee too.
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