The mortgage companies that the administration is relying on to help stop foreclosures have records of preying on homeowners, according to an investigation by the Associated Press. At least 30 of the 38 mortgage servicers participating in the federal loan modification program have been sued for harassing homeowners, charging unwarranted fees or charging for insurance policies that homeowners did not need, the AP found.
Mortgage servicers act as middlemen between homeowners and the banks or investors that own the loans. Servicers collect monthly payments and determine when to foreclose. We reported earlier this week how some major servicers have been slow to modify mortgages through the $75 billion Making Home Affordable program. (You can track each servicer here.) The results weren't very surprising given how many homeowners have been frustrated trying to get help from mortgage servicers — long phone waits, lost documents, miscommunication. (For those of you who haven't spent hours on the phone with a servicer, just watch Rep. Maxine Waters, D-Calif., as she waits ... and waits on hold.)
But these legal challenges extend beyond bad customer service into accusations of "abuse," including cases against at least 14 servicers for previously misleading customers about loan modifications, according to the AP. At least three companies have been sued hundreds of times after settling federal predatory collections cases.
We've been looking at some of these legal cases as well, so stay tuned for more info next week, but as a sneak peek, consider the case of Gary and Pamela Price of Trumann, Ark. In March, a bankruptcy judge ruled (PDF) that America's Servicing Company, a division of Wells Fargo, failed to credit the Prices for $2,796 of monthly mortgage payments and charged $2,368 in unwarranted fees. The judge also ruled that America's Servicing Company violated its responsibility to notify the Prices that their interest rate was going to adjust, when it reset from 7.6 percent to 10.6 percent, an increase of $206 a month. Finally, the judge ruled that America's Servicing Company charged the Prices $1,195 for homeowners' insurance they already had.
The Treasury Department told the AP that it was forced to work with the servicers, despite their records, because they are the only point of contact between homeowners and the investors that own their loans.
More bailout links this morning:
AIG Breakup Is Fee Bonanza (WSJ)
Administration Weighs Splitting Fannie, Freddie (WaPo)
Limits on Speculative Trading Needed to Protect Energy Markets, U.S. Regulator Says (NYT)
U.S. Likely to Sell G.M. Stake Before Chrysler (NYT)
Obama's Plan to Help Homeowners Is Struggling (Salon)
Behind BofA's Silence on Merrill (WSJ)