While mortgage servicers give a lame excuse that they can't help homeowners in trouble until they've missed at least two payments because they are acting in the best interest of their investors, you need to look at their profit margins to understand why they really have no incentive to help borrowers. Countrywide (NYSE: CFC) raked in $285 million in late fees according to a story today in the New York Times. Another major loan servicer, Ocwen Financial counts on 11.5 percent of its servicing revenue from late fees.
Loan servicing can be extremely lucrative. The companies collect payments from borrowers and pass them on to the investors who own the loans. I'm sure you've experienced changes in whom you pay your mortgage to. In many cases it's just a change in servicing company and not necessarily a change in who owns the loan. Loan servicers usually get 0.25% on a prime mortgage and 0.50% on a subprime mortgage. The profit margins for servicers is about 20 percent according to the Times.
But even bigger than late fees are the fees the loan servicing companies tack on if a loan defaults. These include $145 in demand fees, $137 in overnight delivery fees (wow is that a personal door to door trip?), fax fees of $50 and payoff statement charges of $60, according to research done by Katherine Porter who is quoted in the Times story. In addition they can add on charges for monthly property inspection. All of these fees add to the profits of the loan servicing company.
Porter analyzed 1,733 Chapter 13 filings to come to her conclusion that some creditors ask for fees that would probably be considered "unreasonable" by the courts. In 96% of the cases she looked at there was disagreement between the lender and borrower about what was owed. The average difference was $3,533. The Times goes on to list some big differences that ended up in court:
*On October 9, the Chapter 13 bankruptcy trustee in Pittsburgh asked the court to sanction Countrywide for losing or destroying more than $500,000 in checks paid by homeowners in foreclosure from December 2005 to April 2007.
* A bankruptcy judge in Louisiana ruled that Wells Fargo overcharged a homeowner by $24,450.65 or 12% more than what the court said he actually owed. In this case the homeowner took Wells Fargo to court, but many in bankruptcy can't afford to do so.
Max Gardner, a lawyer in Shelby, N.C., told the Times, "We're talking about millions and millions of dollars that mortgage services are extracting from debtors that I think are totally unlawful and illegal. Somebody files a Chapter 13 bankruptcy, makes all their payments, gets their discharge and then three months later, they get a statement from their servicer for $7,000 in fees and charges incurred in bankruptcy but that were never applied for in court and never approved."
These practices finally are getting some attention from the Office of the United States Trustee, which is the Justice Department division that monitors the bankruptcy system. The office announced plans to move against mortgage servicing companies that file false or inaccurate claims, assess unreasonable fees or fail to account properly for loan payments after a bankruptcy has been discharged, according to the Times.
Congress granted credit companies their wish to make it harder for consumers to file for bankruptcy. It's time for Congress to look at the other side and be sure people in trouble are protected as well during the bankruptcy process.
Lita Epstein has authored more than 20 books including "The 250 Questions You Should Ask to Avoid Foreclosure" and "Complete Idiot's Guide to the Federal Reserve."
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Reader Comments (Page 1 of 1)
11-06-2007 @ 4:05PM
lou said...
i have a few mortgages with countrywide and i pay them all at the same time and have never been late ..then after thy(countrywide) had to use there own line of credit, my highest mortgage(which has the higest late fee) came up lost in the mail but the other 3 cleared on time...before all of that, i recived a phone call from countrywide 2days before tht payment was due asking me if i am having trouble and would i be make my payment on time.. very strange to me that they hv nver called b4....so i did an online payment(with the late fee) and day later the check posted!!! jst wanted to if any1 else has had this pblm...think its smthing fishy going on..and i feel i shouldnt hv to pay for the other people who anrnt payn...
11-06-2007 @ 4:13PM
Lita Epstein said...
Lou,
Sorry you experienced the problem. If you're not able to pay electronically from your bank account (many banks do offer online bill-pay that sends payments electronically) then you might want to consider using either the post office, UPS ground or Fed Ex ground and put all payments in one envelope that you send with the ability to track receipt. Check in your area to see who can get there the cheapest. Putting them all in one envelop with each of your mortgage pay slips should not be much more expensive than mailing each separately and that way you'll have proof of receipt.
Lita
11-06-2007 @ 6:47PM
Americas Watchdog said...
Lita God Bless Your Heart
As always your blog is right on target. We have the National Mortgage Complaint Center & we have been dealing with this issue for years. And yes; its getting worse. Unlike a mortgage audit where we look at the fees a mortgage lender or bank charged, the servicing side is impossible to get a grip on. Its not millions of dollars, its billions in fraud. Two years ago the General Counsel for the then largest home lender in the country told me to my face (after about three drinks); "we take all the faxes we get all day long from consumers that try to prove they are not late or they actually made the payment on time & we shred them". Another huge issue is mortgage servicers that give a pay off number to another lender, the borrower makes another payment on his/her mortgage and receives no credit from the new or old lender. This one is in the billions too.
11-08-2007 @ 5:30PM
Derek P. Hart said...
I have 4 Countrywide loans. I pay them directly via their website. Since the website gives you a confirmation number, you can never be charged a late fee. I just wish every mortgage servicer would do this. I don't like the automatic draft as that give too much control to the servicer.
I have had the "late fee" assessment problem with Armstrong Management company. It amazed me that two payments sent out at exactly the same time, from the same place, got post several weeks apart. Although, I did extract my revenge by making them send out monthly statements for a year..each time paying them a nominal amount of money. Hopefully, it cost them more in processing than what they received in late fees.
11-09-2007 @ 6:33PM
Tom CUMLEY said...
Mortgage servicing copanies have no place in my life. I have used my bank for mortgage, and refinancing neds. They are professional, and are up front about how everything is going to work. I bank with LaSalle. I got clipped by a mortgage company years ago, and vowed then never to deal with them again. Thy lied, and lied, and continued to lie. It probably was the best money I ever lost. Dealing with my local bank has saved me thousands, compared to what dealing with a mortgge copany would have cost me.
12-03-2007 @ 5:09PM
Barbara Ann Jackson said...
subject: Mortgage Mess, Foreclosure Fraud, FREDDIE MAC, and Impediments to Justice
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Most critical to the Foreclosure Crisis is FORECLOSURE FRAUD. In almost all instances of foreclosure fraud, MORTGAGE LENDERS become
enabled to ILLEGALLY FLIP properties.
In Louisiana, 2 particular mortgage companies which benefit from fraudulent foreclosures are Wells Fargo (also sometimes a "mortgage servicer") and FREDDIE MAC!
It is HIGHLY COMMON for a DEBT COLLECTOR attorney to file a foreclosure: (i) in the name of a DEFUNCT mortgage company;(ii) in the name of a mortgage company which is NO LONGER holder of the security interest (the promissory note); or (iii) file a foreclosure and AFFIX a 'ransom' amount (the collector's fee) far exceeding what the
promissory note "Acceleration Clause" authorizes.
Despite a property owner's entitlement to Challenge CONTRARY-TO-LAW loss of his / her home, most property owners LACK consumer and legal knowledge; the Court System is REFRACTORY; and there are limited attorneys with acumen to pursue Consumer Law. Also, when borrowers sue for "Unfair Debt Collection Practices," damages, the collector gets to
make more $$ through prolonged litigation, as co-conspirators enjoy the foreclosure pie.
Judicial Corruption is the underlying factor of New Orleans Apartheid conditions that became exposed due to Hurricane Katrina floods. CRONYISM and JUDICIAL CORRUPTION are the salient reasons why unlawful foreclosures are sanctioned in Louisiana. Likewise, the court systems as well as the Louisiana division of the U.S. Justice Department
FACILITATES real estate and mortgage FRAUD here!
EXAMPLE: In my absence, on May 19, 2005 a debt collector attorney used the identity of defunct mortgagor GE Capital Mortgage Services to
carry out a simulated auction of my residence. Although GE Capital Mortgage Services ceased to exist on October 5,2002, it became portrayed as the successful May 2005 auction bidder, and the property deed was transferred out of my name and registered in the name of GE Capital. Three days before Katrina, my family was evicted by mortgage giant FREDDIE MAC because Freddie became recorded as the subsequent July 2005 purchaser of my home from non-existent GE Capital. BUT, as far back as 2002, GE Capital Mortgage Services has ceased to exist upon being MERGED with a different company!
Default on my part, stemming from an abusive marriage, is a fact -and I was trying to negotiate, but the UNREASONABLE RANSOM and other
extortion tactics by collector attorneys hindered me. Also, SEVERE REPRISALS become INFLICTED on people who do not cooperate with property extortion. Everything I have stated here is verifiable in court records, transcripts; and overwhelming evidence posted on my www.lawgrace.org website.
Lastly, Investors need to become more astute about how mortgage servicers' misdeeds hurts borrowers as well as siphons incalculable
amounts of money from what Investors should reap. (See "Limiting Abuse and Opportunism By Mortgage Servicers," AND "Private Property Rights
Deferred: Has Predatory Mortgage Servicing Destroyed The American Dream" by Rawle Andrews, Jr., Esq.,and Leroy Jones, Jr., J.D. Visit:
http://www.msfraud.org/index.html.)
**Here's a few links for my site:
"ILLEGAL REAL ESTATE FLIPPING..."
http://www.lawgrace.org/2007/06/21/illegal-real-estate-flipping-unfair-enrichment-etc/
"Anatomy of Judicial Corruption,. . ."
http://www.lawgrace.org/2007/09/04/motion-for-reinstatement-of-07-30426-appeal-case-explanation-of-request-for-extension-of-time-to-file-brief-and-for-reconsideration-of-5th-circuit-orders-dated-august-31-2007/