March 19, 2001, Revised December 2, 2006
When a mortgage loan is closed, the origination file is closed and a
servicing file is opened. It remains open for the life of the loan.
Whether the process goes smoothly or badly depends on both the borrower
and the servicing agent.
The servicing agent is the entity that receives the mortgage payment,
keeps the payment records, provides borrowers with account statements,
imposes late charges when the payment is late, and pursues delinquent
borrowers. In many transactions, servicing agents also pay property
taxes and insurance with money placed in escrow by the borrower.
Borrowers can choose from whom they borrow, but they can’t choose the
servicing agent. The agent may or may not be the lender who originated
the loan. Servicing is frequently sold. Borrowers must be notified of
transfers, but cannot prevent them.
Borrower Dissatisfaction With Loan Servicing Is High
My mail box is stuffed with letters from borrowers who complain about
bad servicing. The following is a sample.
"My lender sold the loan and the new lender shortened the grace period
and tripled the late fee…"
‘My lender hit me with a late charge when my loan was paid on the 16th
instead of the 15th, and for 7 months after that I have been hit with a
late charge, even though all payments were made on time."
"My lender did not pay the taxes on time or for the correct amount…"
"My lender bought insurance on my house and added the premium to the
loan balance, even though I already have insurance that I pay for…"
"My lender sends me statements that only show the payments, not the
balance…I have no idea how they are applying the payment."
"When my servicing was transferred to another firm, the new firm
converted it to simple interest."
Chuck Cross is a regulator for the state of Washington who has
investigated numerous cases of this type. According to Cross, "about 50%
of the time the consumer is wrong and has misread or misunderstood the
process…and in about 50% the lender has erred."
In cases where the servicing agent is at fault, Cross does not know the
extent to which the problems reflect deliberate attempts to generate
more revenue, or innocent operating accidents. In either case, it is
troubling that some of the names that pop up in my mail are among the
largest and best known financial institutions in the country.
Recourse Against Bad Mortgage Servicing
Since borrowers can’t fire their servicing agents, what can they do to
protect themselves? If you have been mistreated, you should file a
written complaint with the lender addressed to Customer Service. Do not
include it with your mortgage payment, which you should continue to make
separately. State:
Your loan number
Names on loan documents
Property and/or mailing address
This is a "qualified written request" under Section 6 of the Real Estate
Settlement Procedures Act (RESPA).
I am writing because:
[Describe the problem and the action you believe the lender should
take.]
[Describe any previous attempts to resolve the issue, including
conversations with customer service.]
[If it is relevant to the dispute, request a copy of your payment
history.]
[List a day time telephone number.]
I understand that under Section 6 of RESPA you are required to
acknowledge my request within 20 business days and must try to resolve
the issue within 60 business days
If this doesn’t do the trick, you can file a complaint with HUD. You can
also sue. According to HUD, "A borrower may bring a private law suit, or
a group of borrowers may bring a class action suit, within three years,
against a servicer who fails to comply with Section 6's provisions."
You can also file a complaint with the government agency that regulates
the servicing agent. Here are web sites you can use to contact these
agencies: For national banks,
http://www.occ.treas.gov/customer.htm. For Federally chartered
savings and loan associations,
http://www.ots.treas.gov/contact.html. For state-chartered banks and
savings and loans,
http://www.lendingprofessional.com/licensing.html. For mortgage
banking firms,
http://www.aarmr.org/lists/members-IE.html.
If you don’t know the proper agency, you can send the complaint to the
Consumer Protection Division of the state Attorney General. It will
forward it to the relevant state or Federal agency.
The Need to Check Mortgage Transaction History
Borrowers who are aware that they have a servicing problem might be the
tip of an iceberg. All borrowers should periodically check their
transaction history to make certain that a) payments are always applied
to the balance at the end of the preceding month; b) tax and insurance
payments from escrow are correct and there have been no double payments;
c) rate adjustments on ARMs are in accordance with the method stipulated
in the note; and d) there isn’t anything in the history that looks
"funny".
Any borrower who does not receive a complete transaction statement at
least annually should periodically submit a "qualified written request"
for one using the form described above.
Borrowers should also retain all their servicing records until the loan
is paid off and the lien is removed from their home. Read
Your
Mortgage Records Can Save Your Home Equity.