I think you should have a cage match with Gretchen, settle this once and for all. If you win she must attend the Tanta School for Mortgage Nitwits....if she wins you can never mention her name again.
Gretchen claims that servicers are profiting on FCs and BKs. Tanta claims that servicers are losing money on FCs and BKs. This might matter if you really want to know whether there is an incentive to make bad loans or not.
Also, you sheep have been paying junk fees to your servicers for decades, and it has made more money for your sevicer than any FC or BK charge ever has.
Look, the link to this article is going to be all over the internet by the end of the day. There will be no criticism of it; just more evidence that CFC IS EVIL.
So I thought there could be one place where we test some of these claims.
I will only note that it generally takes more time and energy than anyone wants to spend to debunk a lot of this crap. I think the editors of the NYT count on that. So GM gets to launch urban legends with no consequences.
The unmentionable third point of the triangle is David Lereah... in a saga of forbidden lust, entangled emotions and unbearabale tension crackling between Old Media, New Media and Real Estate.
Tanta -
Well, yeah, some of the complaints are moronic....
I was refering more to claims that litton cashes checks on time, then does not credit the account in a timely manner, and forces the property into foreclosure.
OT - (sorry Tanta) Paul Krugman has posted an update of his Wile E. Coyote paper (and a tongue in cheek reference to Supermodel's now asking for payment in currencies other than dollars) on his NYTimes blog.
jus me, I'm merely pointing out that, well, people tend to recognize the humor in the line "the check is in the mail" for a reason.
Without more information I couldn't tell you how legit those stories are. I can, however, tell you that people claim to have mailed payments they did not mail all the time. You do have to take these stories with at least a grain of salt.
And we should be surprised that servicers are as incompetent in managing foreclosures and BK as they are in their general operations?
A better piece would be on why they never seem to find your proof of insurance and try to enroll you in the default insurance program, which, yes, they own.
Tanta, we are living through the most amazing housing story in history. I'm baffled that GM doesn't just tell each portion of the story straight - it is compelling enough.
Perhaps someone should send her a link to the UberNerd library!
Our loan was sold to Litton who failed to properly service our loan. They never mailed us statements and refused to give us our loan number over the phone or change our billing address so we could receive our statements.
If you were a servicer, what would you do if some person called up and claimed to be the borrower, and couldn't give you an account number, and wanted you to give him the account number and also change the billing address on the loan?
Would you possibly think "identity theft"? "Occupancy fraud"? (Standard occupancy fraud problem: the borrower claims he will occupy the property, so he has to tell the original lender that the billing address will be the property address. But in fact, the property is vacant. So the servicer mails things to the vacant property, and the borrower wants to just call up and change the address because it's a "mixup."
As written, this entry is an example of the servicer doing exactly what it is supposed to do.
Tanta -
So the complaints of a bunch of self-interested whiners does not qualify as "evidence." I'm with you on that.
But what would qualify as "evidence" that, in GM's words,
some consumers may be losing their homes unnecessarily or that mortgage servicers, who collect loan payments, are profiting from foreclosures.
There is a very good story to be written on why mortgage servicing is as bad as it is.
Probably 90% of the horror stories you hear have to do with transferred servicing. In other words, this whole thing we've been talking about--selling off loans hither and yon--has profound operational implications as well as credit risk-loss issues.
My view of the matter is that you have small, incompetent originators closing loans and then selling them to a correspondent lender who uses some low-cost stripped down operation like GMAC subservicing. So the originator screws up the transfer on its end, and the acquirer screws it up on the other end. The consumer is stuck in hell. Sometimes you have a perfectly competent servicer but an incompetent originator: nonetheless, the borrower blames the servicer because, well, the servicer is the one still talking to you.
But this happens because the costs of operational failures are "subsidized" the same way they are in any other industry: layoffs, temping, outsourcing, etc. Any time anyone attempts further regulation of this, to cut down on egregious servicing transfer errors, the industry tells that rates will go up, and the public falls for it again and again.
We are just beginning to understand the "true cost" of the business models that have been in play for the last decade or so. That's a very good story. I wish Morgenson would write it.
Well, I would want to see a case where the borrower made the payments, the servicer threw them away or refused to post them, then foreclosed. That would be an "unnecessary" foreclosure.
Then I would like someone to show me how that was profitable for the servicer compared to just taking that borrower's payments and earning the monthly servicing fee.
[... The] myriad forces that corporate America has unleashed in its endless quest to enrich CEOs and keep you on hold for ten hours as you struggle to understand all that crap on your phone bill or locate your lost luggage...
I first read it as: "...and keep hold on you for ten hours as you struggle...". Works well as a comment on the work-a-day world!
Let's use this figure of $1,366 per loan in "extra" charges from the GM article. Let's say that the servicer nets half of that (which is a lot) after expenses. The servicer goes to all the trouble to drive a borrower into BK in order to get paid $683 in a Chapter 13 repayment plan over 3-5 years? This is more profitable than just posting payments that were actually sent to you?
--
"We are just beginning to understand the "true cost" of the business models that have been in play for the last decade or so."
Maybe you should begin to understand the true cost of:
A financial system of the Crooks, by the Crooks, and for the Crooks.
If you believe that any of this (lending related abuses) would have gone on without the blessings of bankers and financiers of New York City, with the blessings of the Fed, then you are either naive, which I doubt, or suffer from blind faith in the system.
jus me, if Litton is in fact violating RESPA I hope they get busted. What would you expect me to say?
The problem is that in a toss-up between a mortgage servicer and a class action litigator, I'm not sure who I'd pick for Greedy Blood Sucker of the Year.
Now, if you want to make the argument that Litton, or any other servicer, is intentionally violating RESPA in order to maximize its profits, then do so. My guess is that a lot of screwups, like reporting a payment late to the credit bureaus that wasn't late, could be traced to the servicer's "cost cutting" operating procedures and staffing levels that allow too many mistakes.
I mentioned that kind of problem in my post. But the reality of the situation is that if those are "ill gotten gains," then they are overwhelmingly being made off of performing borrowers, not delinquents. There are waaaaay more of the former than the latter. Even if you accuse the servicers of "creating" delinquent borrowers, you still have to show how they specifically make money doing that, as opposed to how they let sloppy operations go on because it looks better on their bottom line, just like the airlines do when they lose your luggage because it beats paying unionized baggage handlers a living wage and tourist-class borrowers don't fly often enough for the airlines to worry about repeat business.
I remain convinced that this sloppy shit is really terribly expensive for these servicers; it's just that, as with fraud, these problems were masked for a long time by the boom. So I'm not denying that there are real competence problems: I am denying that it's an organized conspiracy to profit. It looks to me like a sure-fire way to run your business into Chapter 11.
GMAC subservicing has always had issues with new loan set up. Not an easy thing to do for any servicer, anyway.
The mortgage industry is mostly invisible data tracking, until you reach a decision point. Then you need all of the information, at your fingertips, in a fiduciary, legally binding contractual timeline driven, customer service instant.
Well, two ways. If they post the checks late, then they get both the payment and a late fee. Second, in ancient times (two years ago) when prices where going up, if they foreclosed on a house, bought it for the amount on the note, couldn't it be re-sold it at a profit?
It makes me wonder is there is a secondary market for foreclosed houses that makes this worthwhile to the servicer.
Right. We're looking at optimistic estimates of loss severity of 40%; less optimistic estimates of 70%. And in the midst of this servicers are creating unnecessary foreclosures, and investors aren't noticing.
You are aware, of course, that the noteholder pays the tab (outside of Chapter 13). Could all of this rest on a confusion between noteholder and servicer?
Bloomberg has a piece up this morning (the service, not the website) about AHM suing Triad (a mortgage insurer) because Triad is refusing to cover claims on mortgages it says AHM screwed up. This is a very real risk a servicer faces. Thing is, outfits like Triad don't just shrug and write checks to these servicers. In order to believe in a massive forced-FC conspiracy, you have to believe that the real bagholders--investors and insurers--are paying no attention.
In your post, you denied that there was any evidence of it
I stated that there is no evidence of it in GM's article. That is true. There isn't.
She made the claim, and then did not back it up. It doesn't help any to find "evidence" somewhere else.
You are ignoring my point: you have to show how this can actually be profitable to the servicer before you can claim they do it to profit.
Come on. She uses an example of a servicer who listed the mortgage at $1 million when it was really $60,000. That's an embarrassing error. But do you really think the servicer did that because they thought they would get to collect $940,000 in bankruptcy court that they were not owed?
Right. We're looking at optimistic estimates of loss severity of 40%; less optimistic estimates of 70%. And in the midst of this servicers are creating unnecessary foreclosures, and investors aren't noticing.
Hmmm... note to self: don't argue with Tanta, ever.
(BTW, Tanta, thanks for the UberNerd series. Great stuff.)
The creation of bogus late fees and/or insurance seems to make sense to the servicer though. (Look at the bonanza that credit card companies have turned fees into.) Maybe it's just that they don't care if these then lead to FC - especially if the investor eats it rather than the servicer?
There is so much smoke around Litton, it's hard to believe that there isn't fire there somewhere.
Actually, it still doesn't make sense to me how a servicer or creditor can make money off a foreclosure.
Phoney late charges, BS NODs seem to have happened to a friend of mine. I didn't believe him at first (sure you sent the payments on time, uh-huh) but I looked into it a bit and it seems like it really does happen.
I'm not sure why, though. Seems like a sure route to either BK or the pokey for the lender/servicer. But it does seem like servicers really do systematically force borrowers into FC even when they make payments on time.
I admit I'm hazy on why. It doesn't make complete sense to me either.
"According to Claudia Coulton, co-director of the Centre for Urban Poverty at Case Western Reserve University in Cleveland, over 10,000 families - one in eight of all owner occupiers in Cleveland - will face eviction this year..." (emphasis mine)
The story makes it seem like no-one knows what to do here, so all parties are just mechanically following whatever their preprogramming says to do. I mean, why throw out a woman making payments in a neighborhood where you'll never sell the house again? The moment she walks out, that place is toast. They should pay her to stay while they sort this out.
Tanta Well, I would want to see a case where the borrower made the payments, the servicer threw them away or refused to post them, then foreclosed. That would be an "unnecessary" foreclosure.
Hate to burst your bubble, Tanta, but I see this all the time. Seriously. It happens on low balance mortgages that cost the servicers more to service than they get from their chunk of the interest.
I had to go to court to get one in my family cleared JUST like this. The servicer would not speak to the individual paying the mortgage. Would not look at the checks. They applied the checks to two different accounts over the space of six months, sent a foreclosure notice, and then refused payments. Once we got a court order I had to get statements, recalculate the mortgage balance and lalala! they had over $13,000 in accrued interest that was invalid. I usually advise people in this fix to get certified checks and send those in so they have evidence in court. Once the mortgage was reinstated and properly calculated, they then force-placed insurance for the next three years. I finally gave up.
Other SOP practices for crummy servicers are to deny every year that they have received notice of insurance placement and to force-place their own much higher insurance (provided from an affiliate of course), and to routinely post payments late enough to collect late charges. This summer I polled an office in a company for which I do consulting. I asked everyone if they had a mortgage balance below $50,000, and if they had had this happen to them in the last three years. EVERY PERSON WHO HAD A MORTGAGE BALANCE THAT LOW SAID YES. Not one of those with low balance mortgages had had their mortgages properly processed in the last few years. NOT ONE!
You would not believe how much mortgage business rolls back to small banks from the very phenomenon you deny.
If there are any bankruptcy attorneys out there, please join in.
Once again I am lovestruck by the expository discourse. [swoon]
To my untrained, blurred and clouded retinae, the nut of the whole piece presented above is in the "efficiencies" discovered by firms (all of them, not just mortgage servicers) in the quest for profit. The airlines and telcos cited were perfect examples, but our whole economy is filled with many others.
Hell, even governments get in on the act, moving expenses off of some books and onto others--privatization, they call it. Is the consumer served any better in these efficency-seeking schemes? Yes, and no. . . that's the answer any economist worthy of the title ought to provide. Winners and losers, creative destruction, and all that.
But the efficiency seeking might have gotten a tad unmanageable in the last few years. It is only a matter of time before consumers pull back the curtain and declare that they are not getting he promised value out of the services and goods they've purchased, and they'll recoil, fiercely. I believe that such recoiling will come in the form of seriously curtailed spending, innovation, and speculation; and when that happens, yuck.
So GM writes her article, and nobobdy notices that the real problem isn't some evil vampire sucking their life energy out, one $50 junk fee at a time. The real problem is us, in our largely uncritical quest for all-holy efficiency and the perfection of the market. We're human, and we expect markets to operate at better-than-human levels in the absence of meaningful regulation and oversight.
I stated that there is no evidence of it in GM's article.
It doesn't help any to find "evidence" somewhere else.
Huh? An article can't make a simple assertion? All articles do this all the time.
You are ignoring my point: you have to show how this can actually be profitable to the servicer before you can claim they do it to profit.
Yes, I am ignoring that part of your point. If mortgage servicer's are forcing unnecessarily forcing defaults, that's important on it's own, independent of exactly how it's profitable.
"Bankruptcy specialists say lenders and loan servicers often do not comply with even the most basic legal requirements, like correctly computing the amount a borrower owes on a foreclosed loan or providing proof of holding the mortgage note in question."
Perhaps our attorney friends will tell me how it is that servicers have to prove that they are noteholders in a bankruptcy. I suspect that's news to all investors in mortgage bonds, who think they are the noteholders. Are we talking about sloppy filings, in which the servicer failed to include a copy of the note? Or are we really talking about servicers who cannot cough up an assignment of mortgage or deed of trust to show standing to foreclose?
I'm responding to your plea. The servicer is an agent of the trustee, which is the agent of the noteholder, so yes, the servicer is a noteholder in a manner of (legally) speaking. It may even hold legal (but not equitable/beneficial) title to the note, i.e., the piece of paper rather than the payments due under it. Furthermore, it holds the actual notes signed by the borrowers - originals or electronic copies of the originals - which as you said must be included in legal filings.
My guess is she meant the servicer couldn't come up with a copy of the note. I think it's very likely servicers lose notes (I used to work for one). Since the servicing fee has been set at a standard rate by the market, servicer profitability depends on being able to squeeze costs, with predictable results on competence and customer service. No need to suppose malice when stupidity is a sufficient explanation, as someone said.
Good post, of course. I'm afraid I don't think much of the NYT's (or MSM's) reporting in general - too much focus on managing the workload and increasing access to the powerful.
To support my comment above, I refer all readers to this ABANet article.
All a servicer needs to do to increase profits is repetitively dump low balance mortgages. It is very profitable to them to do so. If they have to go to foreclosure, they will recover all their costs. Their real intent is usually just to irritate the borrower enough to get them to refi.
If mortgage servicer's are forcing unnecessarily forcing defaults, that's important on it's own, independent of exactly how it's profitable.
Why would they do it if it isn't profitable?
Furthermore, it holds the actual notes signed by the borrowers - originals or electronic copies of the originals -
Sometimes. Mostly those are held by a note custodian (a bank with a trust department). And thank God for that: you are absolutely right that servicers lose note copies much too frequently.
I am getting the impression that the mortgage servicing business is like the insurance business in that if you are not stupid, greedy or grossly inefficient you can make a living. Not get rich, but make a living. Right or not?
I asked everyone if they had a mortgage balance below $50,000, and if they had had this happen to them in the last three years. EVERY PERSON WHO HAD A MORTGAGE BALANCE THAT LOW SAID YES. Not one of those with low balance mortgages had had their mortgages properly processed in the last few years. NOT ONE!
OK, I have to ask. How many people in that office had a first lien mortgage with a balance of less than $50,000?
How many had a second lien involving tax and insurance escrows?
Of course servicers hate low-balance loans, except the ones that are in the business of servicing low-balance loans. (HELOC lenders, anyone?) But no, I am not convinced that there is a widespread intentional practice of forcing low-balance loans into FC in order to get them off the books. Do I think lenders offer shittier service to low-balance customers? Does the pope know what "ora pro nobis peccatoribus" means? But those aren't the same things.
prepay speeds are so slow on non-agency loans right now that it would seem you'd want to keep those suckers who can perform but not get a refi in your portfolio...
Well, bacon dreamz, I'm with you. You have a performing low-balance loan on which all you have to do is post the check every month (unless it's ACH, which is even less painful). It probably costs you -$60 a year to keep that loan, but you have a bunch of large loans that make you plenty of money, so it all averages out.
Unless you intentionally create more work for yourself on the low balance performing loans, in the hopes that they will refi and you have to write off the premium you paid for them, or you can foreclose and eventually break even if the property liquidation can result in enough cash. OK, well maybe you'd want to post the low-balance loan payments late on purpose, so that you get your 5% of a $90 loan payment. I don't know how you actually do that with a lockbox these days. I know in the old days it was easy to let an envelope with a check in it sit on Euelna's desk for the weekend so that it could be posted late on Monday. If these servicers are still processing payments with an old-fashioned cashiering department, then no wonder they can't make any money off loan servicing. But how many mortgage payments get processed that way these days?
I'm a firm believer that "technological innovation" often just means more moving parts that break in inexplicable ways and are incredibly expensive to fix. So I'm sure that these modern payment processing systems fork up a lot. Why we assume that someone is intentionally intervening in order to create an adverse outcome is, well, a fact of human nature, I guess.
No, second liens are not involved, because the banks would pick them up in title search. These people never have any trouble refinancing. The bummer is that they often have to pay a higher rate, but after you go through this for months and years at a time, you are willing to do so. Those insurance bills are HIGH.
You're probably wanting to attribute this to GA subprime possums. My brother, who is very financially responsible, bought a house with about 40% down in 2002 or 2003. He lives in PA. The mortgage was through GMAC, fixed, for something below 6%. I don't remember the exact rate. I warned him then to calculate his mortgage balance every few months.
Several years went by, no problem. But he was paying down principal with extra payments, clearly designated a few times a year. Everything was applied correctly although payments tended to be applied late.
A month after his mortgage balance dropped below $100,000, he received a letter from GMAC notifying him that he could draw another $125,000 with no fees, no appraisal. They informed him that his house had appreciated another $200,000 since he had bought it. I laughed at the time.
A few more months, a few more letters. LALA! In the next few months he had to spend days on the phone getting his misapplied payments fixed. He called me in a rage because he'd had to speak to four people one month, then was promised that his principal payment would finally be applied correctly (all of a sudden those principal payments were going into suspense as future payments), and the next month the statement comes and it still hasn't been fixed. I sent him the names and addresses of the PA Banking agencies and the appropriate state laws to cite. After sending a letter with that information, his payments were finally applied correctly.
For some of these companies it's routine. A few months later the problems started again, and he finally got disgusted and paid the mortgage off completely in 2006 with cash.
THIS HAPPENS ALL THE TIME. You said you wanted to know how it's profitable. Believe me, if you dump a good fraction of your mortgages that are low-profit, your numbers look better. There is no real risk to these tactics. I can't even get most of these people to report to the correct agencies, because it's a waste of their time.
Jeez Tanta,expecting GM to be as professional as Paris Hilton is TOTALLY unrealistic.....she is in the running for the "Judith Miller award for excellence in Journalism" and YOU want her to screw up her big chance!
But MOM, what you are describing is an extremely common experience of GMAC customers. Regardless of loan balance. GMAC is the poster child for "low bid" subservicing operations. They could fork up a wet dream.
Sorry to suggest that this might be a case of post hoc reasoning, but it might be. You have one thing happening (a bout of terrible service) after something else (balance dropped under $100K). That doesn't mean one caused the other.
I wasn't assuming anything about "GA possums." I was simply wondering how many people you know with first liens of that balance. If they're second liens, the force-placed insurance thing wouldn't apply, because seconds don't carry escrows.
Misapplication of curtailments (showing the loan as paid ahead instead of principal reduction) certainly do happen. It wouldn't surprise me in the slightest to learn, for instance, that GMAC threw an untested programming change into production on its system that started misapplying all curtailments. They do shit like that, in the never-ending quest to save money by never having a sentient human being intervene in anything ever. And they make sure to hire customer service reps who don't understand how to fix the transaction, or who are not given the authority to do so (making you call back six times to get a supervisor who can "override" the computer).
Tanta, when it happens consistently with low balance mortgages, it is a "pattern and practice".
You appear not to want to hear what I am trying to tell you. This seems to be very common in a lot of servicing ops.
Anyway, I give up with you. I have made my decision though. I'm going over to the dark side. By this time next year, I expect to be working for a lot of lawyers helping them to sue the piss out of companies and banks who do this. I've tried everything, and nothing else has worked. It has to be stopped.
Congress is corrupt and paid off, so are most state legislatures, the agencies are understaffed, and I guess there's nothing left to do but resort to the courts.
Obviously I have a profound conflict of interest, and I can't do it locally. I'll have to pick up and move. BUT I WILL DO IT.
Well, two ways. If they post the checks late, then they get both the payment and a late fee. Second, in ancient times (two years ago) when prices where going up, if they foreclosed on a house, bought it for the amount on the note, couldn't it be re-sold it at a profit?
Yes, if you intentionally post a payment late, you get both the payment and the late fee. If the borrower's next check doesn't include last month's late fee, it can be returned as a partial payment or stuck in some suspense account. Ultimately, this can end up showing a delinquent loan. If you let that continue without fixing it, you can end up filing an FC notice and so on and so on. You will rack up all kinds of processing costs, person-hours on the phone, reports to trustees and investors, etc., as well as the other costs of a FC. If the borrower declares BK in order to stop you, you probably won't get your $50 late fee. If you do, by God you will have earned it, at the cost of only maybe $150 in unreimbursable expenses.
You cannot buy a home at the FC auction, sell it for more than you bought it for, and keep any proceeds over your total indebtedness (including past due interest and expenses). Not legally you can't. Excess proceeds belong to the borrower.
That's a basic rule built into the system. Otherwise, during the boom the FC rate would have been astronomical: every time a borrower was a couple days late on a payment, the servicer would have foreclosed to take advantage of a hot market.
There are obviously servicers who pad the payoff statement with a bunch of junk fees--I acknowledged that in my post. I further suggested that judges cram down those loans to teach those servicers a lesson. For borrowers not in BK? Well, if the RE can sell for that much, usually the borrowers sell it.
Just to corroberate GMAC offers several low cost servicing options and you get what you pay for.
If servicing is such a lucrative business right now why are mortgage lenders like CW and IMB trading below book value? Wouldn't they have tremendous "revenue" opportunities from all of the modification and foreclosure activity that's coming up?
You appear not to want to hear what I am trying to tell you.
Well, I think you're telling me that borrowers with low-balance loans get horrible service, including things like servicers not bothering to fix problems, letting the situation get to FC, etc. I agreed with that. Because no servicer I know of wants to expend a dollar's worth of effort on those loans if it can avoid doing so.
You want me to agree that servicers boost profits by intentionally creating problems that will force low-balance loans into FC. I argue that they lose money if and when they do this. I do not see how the additional expense could possibly be worth it for them.
So you think these people are very smart and clever (but scummy). I think, if they're doing this, they're amazingly stupid (and scummy).
Yes, I think I'm right. Sorry you feel like I'm not listening to you. But I do not understand the economics to the servicer part of your argument. If I were going to make money off of late fees by mis-posting payments, I'd do that with the biggest payments I get, since late fees are a percent of the loan amount. The last thing I would do is play this game with tiny payments. Getting 5% of a $90 payment seems like pretty small beer to me.
And this doesn't address the question of how servicing rights on low-balance loans are valued in the first place. You are certainly correct that servicers don't like them, because they're just as much work as a large loan but they throw off less income. Therefore, servicers usually pay a much lower price for low-balance loan servicing rights. This means that low-balance loan borrowers pay higher interest rates. They have ever since "tiered pricing" was OK'd by the regulators. I don't like that situation any more than you do, since it basically punishes people who borrow modestly.
I hope you go over to the dark side, and anyone you find who by incompetence or evilness forced a performing borrower into FC, you smite with your mighty sword. You will still have many, many more performing borrowers who were not forced into FC who are paying higher interest rates so that they are profitable to mortgage servicers. How do you propose to fix that?
Servicing income is "counter-cyclical." Always has been.
When origination volume drops, that generally means that the loans on your books aren't prepaying (via refi or property sale). Slowing prepayments boost servicer income: all servicers have the same up-front cost to take on a new loan, regardless of its size. The servicing income comes in a dribble: on a conforming fixed rate loan, you get 1/12 of 1/4 of 1 percent of the loan balance per month. So if a $200,000 loan stays on your books for two years, you make ~$1,000 (less amortization) in gross revenue. If it stays on the books for only six months, you only make ~$250. If it cost you $250 to acquire and board the loan to start with, you broke even on the early payoff and you made a profit on the persistent loan.
So right now, slowing prepayments are definitely improving servicing fee income. However, rising delinquencies are offsetting that (more expenses, plus once a loan defaults it's just like a refi, no more income).
Therefore, it can be true that servicing income is carrying an outfit like CFC right now, even while it can also be true that just servicing income (without the fat origination profits) will not be enough to keep them going without major downsizing on the origination side.
You cannot buy a home at the FC auction, sell it for more than you bought it for, and keep any proceeds over your total indebtedness (including past due interest and expenses). Not legally you can't. Excess proceeds belong to the borrower.
I should probably shut up by now, but...
Ummm, who is the "you" in this? The creditor, or anybody? Surely it's possible to buy a house at FC and later sell it for more than the original indebtedness. Maybe there's a one year waiting period, or maybe the above regulation applies to the creditor only? I doubt the debtor has recourse forever on later sales of the property.
If it's just the creditor that cannot flip it for a profit, I doubt it's very difficult for the creditor to create an LLC to take the profits.
The lender generally bids the total indebtedness at the sale (loan amount plus expenses). If a third party bids more than that, the third party buys the home from the borrower. The borrower only pays to the lender the total indebtedness. The county sheriff or clerk cuts a check to the borrower for the difference. FC means forcing the borrower to sell his or her home in order to pay off the lender. The home does not belong to the lender unless and until the lender buys it at the auction.
Yes, a third party buyer could flip the property later. No, there aren't many mortgage servicers who pretend to be third parties so that they can pay more than the total indebtedness to the borrower in hopes that they can flip for even more than that.
But even if there were such clever sharks in the boom years, what makes anyone think they're doing this now?
Tanta - in the case of my brother's loan, for instance, of course the payment wasn't tiny. It was the original payment. What was getting really low was the INTEREST portion of that payment. And they weren't not posting regular payments. They suddenly started sticking the extra principal payments in suspense.
Like most of corporate America today, servicers are far too focused on costs (and ignore the broader cost-related concept of value). And, that perversion has really only gotten worse over the years, in my experience.
Lower (or, more appropriately lowest) cost almost always wins in today's servicing environment (Ex. A, Ocwen and the VA contract), even if it comes with a lesser degree of service (to the customer; IR will of course be handled with velvet gloves). I obviously don't need to tell you how a servicing contract gets awarded - needless to say, ranking high in the latest JD Power poll carries about as much weight as a paperclip.
While I generally agree with you that servicers really have no incentive to methodically and intentionally defraud borrowers into FCL, I do not necessarily agree that outcome results because the investors are a stabilizing force.
Investors can be as clueless as the servicers they hire. If you think the servicers only care about cost, you should meet some of these investors. They'll make a servicer look like a loan broker in Vegas who just got his commission check for this week's five jumbo Option ARMs with a 2% YSP and 2 points on the front.
That investor sentiment - drilled in by the ratings agencies - has fostered a general "hot potato" mentality at the servicing shops. No one wants to really solve a problem - because that would take time and money, either of which gets you an earful from the investor (or lowers your bonus). The practical solution is much more political - shoving the problem into a "more appropriate" (read: someone else's) cost center, and let them deal with it. (Suckers.)
And, as you undoubetedly know, reimburseable expenses are limited, more or less, to what is "necessary" and "reasonable". Given that those words can be interpreted however an investor sees fit, most servicers are loathe to spend any money to actually prevent a problem before it surfaces. Even if a preventative measure would cost only $10, the servicer may get stuck with it. Wait for the problem to appear - and even if it will then cost $1000 to resolve, that's really a $10 savings to the servicer.
So, in short, methinks your assumptions on the wisdom and foresight of the investors is a bit overstated. Experience tells me they can be just as myopic on costs as the servicers are, and in fact may be contributing to the servicers' attitudes regarding same.
Keep up the good fight, and keep on rockin' for the kids, CR and Tanta.
While I generally agree with you that servicers really have no incentive to methodically and intentionally defraud borrowers into FCL, I do not necessarily agree that outcome results because the investors are a stabilizing force.
I certainly don't want to overstate the case for investors. It just seems as if we sometimes forget whose proceeds these fees and charges are coming out of to pay the servicer.
Mostly it's the GSEs and the MIs who kick servicers around about Teh Stupid, in my experience.
Well, I would want to see a case where the borrower made the payments, the servicer threw them away or refused to post them, then foreclosed. That would be an "unnecessary" foreclosure.
Then I would like someone to show me how that was profitable for the servicer compared to just taking that borrower's payments and earning the monthly servicing fee.
Jesus H. Jumping on a crutch, Tanta - this is what I've been trying to tell you since I showed up here Day 1!
You want evidence? Hillsborough County Superior Court North, Manchester, NH. Docket #04-E-0025.
Fairbanks/SPS had me in default literally Day 1 of obtaining my servicing rights despite the fact that I was current. Additionally, (and I'll send you a scanned copy of the check and the court testimony if necessary) Fairbanks/SPS accepted a CRR sent payment, received 4/11/02 - three days before grade period expiration, then attempted to get me to state on the stand, under oath, in a court room, before a judge that the date that the check was processed i.e. all that info on the back of cancelled checks, was the date that the check was received. Only problem with that is that the front of the check was stamped "received" 4/11/02.
Throw in the force placed insurance despite having my own policy in place, the dozen+ BPO charges that, by terms of my note, could not be charged to me but had to be paid by the lender/note holder - and yet WERE, in fact, charged to me and you've got a fair portion of Gretchen's story.
1,100 opted out of USA/Curry. If this were a random case of a borrower here and there that would be one thing. But at the time of USA/Curry 280,000 represented roughly 40% of the loans in Fairbanks/SPS' portfolio of 750,000. Is it coincidence that Fairbanks stated at one point that at any given time roughly 40% of its portfolio was in default? I'll have to find that quote again as it unfortunately escapes me at the moment. Incidentally, at last count, I believe that Fairbanks/SPS claims that I owe roughly $80k more than I originally borrowed. I'll send you a copy of the latest monthly statement too if you'd like.
More proof? Maxwell v. Fairbanks Quoted from Maxwell "Nevertheless, Fairbanks in a shocking display of corporate irresponsibility, repeatedly fabricated the amount of the Debtor's obligation to it out of thin air. There is no other explanation for the wildly divergent figures it concocted." Schlosser v. Fairbanks . Stark v. EMC Gillean v. Ameriquest Wilson v. ABN AMRO .EMC v. Davis Guzman v. Ocwen
But this sh*t is actually happening. I've got the permanent injunctions and contempt orders to prove it posted on my website. I was one of those 281,100 FTC-certified victims. I opted out of USA/Curry because it simply did not provide enough protection to
You cannot buy a home at the FC auction, sell it for more than you bought it for, and keep any proceeds over your total indebtedness (including past due interest and expenses). Not legally you can't. Excess proceeds belong to the borrower.
Tanta, if a property is purchased by the lender at auction it is usually purchased for the value of the loan plus whatever fees supposedly owed by the FC'd owner. There is no profit there because the lender purchased it for the value of the loan. But upon that auction sale, the property is effectively laundered. Once it is sold by the lender as REO on the retail market in the next cycle of sales the FC'd owner is considered out of the picture. Profits are only returned to the FC'd borrower if the property sells at a profit at the auction. Any sale beyond that and there is no joy for the FC'd borrower. As additional proof, I'm seeing prospectus PSAs being written to include "liquidation proceeds" as "additional servicing compensation".
"In most cases, the master servicer or any servicer will be entitled to additional servicing compensation in the form of assumption fees, late payment charges, or excess proceeds following disposition of property in connection with defaulted loans and as otherwise specified in this prospectus. CREDIT SUISSE FIRST BOSTON MOR ACC COR HO EQ ASSET TR 2002-5
In addition to the servicing fees, each servicer will be entitled to retain as additional
servicing compensation (i) any ancillary income, consisting of late payment fees, assumption fees, prepayment premiums and other
similar charges relating to the mortgage loans it services, (ii) net income from investment of funds in the applicable servicer
custodial account and (iii) any profits from the liquidation of mortgage loans. WACHOVIA MORTGAGE LOAN TRUST, SERIES 2007-A
Additionally, there is at least one case, and I suspect many more, where the local foreclosure mill firm owns the auction house used to auction the FC properties that the mill handles. The mill also owns a title company and a private mortgage company as well. Sat night I checked 21 pending FC auctions handled by the auction house against the public notices in that night's paper. 17 of 21 auctions being handled by the auction co. were being FCd by the FC mill firm. I confirmed another dozen sales like this in another state in which the FC mill is licensed to practice.
This shit DOES happen - just as MoM has asserted. And whether you want to believe it or not, it is not "accidental" or "stupidity". If it happened one in 1,000 or 10,000 I'd say "oops". USA/Curry v. Fairbanks established that it happened in 281,100 out of 750,000. That's not an "oops". That is a PATTERN.
As a loan processor, I see differences in what the consumer thinks they owe and what the servicer says they owe on a daily basis. Most consumers forget that they pay their mortgage interest in arrears, so they are always suprised at what the payoff states, as they always assume the payoff is their principal balance.
If a consumer hasn't made his/her (for example) November payment and we close on November 23rd, then they will have almost 60 days interest added to the principal balance, because the November 1st payment would have paid the October interest on the loan. Just 50 days interest on a $100,000 loan @ 7% is almost $1,000. And this is a common misperception even with more "educated" consumers.
I disagree with a payoff fee and some of the other fees that are charged when a payoff is ordered. It seems though, that a consumer who hasn't paid 4 months interest on his/her loan , real estate tax and insurance, would have a substantial difference in what they thought they owed compared to what the servicer says they owe.
It may not be the norm, but I've had borrowers that were upset that they have to have a hazard insurance policy or that they have to pay their past due real estate taxes, so it seems possible that the consumer could 'cough' be part of the problem.
Also... I filed bankruptcy about 7 years ago, and my attorney used the principal balance from my mortgage statement on the original filing (I kept the house). So using the filing amount compared to the servicers requested amount doesn't seem too scientific as there are so many variables to consider.
The home mortgage industrie's "boogey man" is the irresponsible "sub-prime" borrower who's "risky" loan is now in default. I am just a simple civil servant "sub-prime borrower" making mortgage payments on home for the past three years. The dubious title of "sub-prime borrower" has left me staring down the barrel of an ARM which is ready to adjust and almost double my payment. I have payed over a $120,000 in fees and interest to the lender and other persons/entities involved in the loan process (No late fees yet). About $2200 of this money has been allocated towards the principle. So, I am perplexed as to the amount of whining that is being done on behalf of the home mortgage loan servicing industry and lenders. Lenders and the servicing industry have profited from the financial despair that the "fine print" and immpossible terms that these loans create.... Renegotiate terms with your borroweres... or start swimming.
I'm tempted to declare ...
First to ask for a exec summary
I think you should have a cage match with Gretchen, settle this once and for all. If you win she must attend the Tanta School for Mortgage Nitwits....if she wins you can never mention her name again.
First to ask for a exec summary
Gretchen claims that servicers are profiting on FCs and BKs. Tanta claims that servicers are losing money on FCs and BKs. This might matter if you really want to know whether there is an incentive to make bad loans or not.
Also, you sheep have been paying junk fees to your servicers for decades, and it has made more money for your sevicer than any FC or BK charge ever has.
Is there some bizzare love triangle I don't know about here?
Look, the link to this article is going to be all over the internet by the end of the day. There will be no criticism of it; just more evidence that CFC IS EVIL.
So I thought there could be one place where we test some of these claims.
I will only note that it generally takes more time and energy than anyone wants to spend to debunk a lot of this crap. I think the editors of the NYT count on that. So GM gets to launch urban legends with no consequences.
"if the accusation here is that servicers drive borrowers into default in order to foreclose, I'd like to see some evidence for that." -
There are some horror stories about Litton, see
Consumer complaints about Litton Loan Services
or
Ripoff Report Search Results: Litton Loan
Granted they're anecdotal, and not exactly "unbiased"
Those are some great Litton stories. I like this one:
On our last statement it showed on a $783 payment, $700 was for interest and only $83 went on principal. What a rip off company!
There isn't a whole lot you can do for consumers like that.
Tanta said: "...I will only note that it generally takes more time and energy than anyone wants to spend to debunk a lot of this crap."
Tell me about it. Can't decide if Sisyphus or Canute is the better analogue.
S.
The unmentionable third point of the triangle is David Lereah... in a saga of forbidden lust, entangled emotions and unbearabale tension crackling between Old Media, New Media and Real Estate.
Tanta -
Well, yeah, some of the complaints are moronic....
I was refering more to claims that litton cashes checks on time, then does not credit the account in a timely manner, and forces the property into foreclosure.
Posted by Tanta
oh man, the narc is back...quick dude, flush the option arms down the toilet and climb out the fire escape before she finds us!
OT - (sorry Tanta) Paul Krugman has posted an update of his Wile E. Coyote paper (and a tongue in cheek reference to Supermodel's now asking for payment in currencies other than dollars) on his NYTimes blog.
Modeling the falling dollar - Paul Krugman Blog - NYTimes.com
jus me, I'm merely pointing out that, well, people tend to recognize the humor in the line "the check is in the mail" for a reason.
Without more information I couldn't tell you how legit those stories are. I can, however, tell you that people claim to have mailed payments they did not mail all the time. You do have to take these stories with at least a grain of salt.
And we should be surprised that servicers are as incompetent in managing foreclosures and BK as they are in their general operations?
A better piece would be on why they never seem to find your proof of insurance and try to enroll you in the default insurance program, which, yes, they own.
Tanta, we are living through the most amazing housing story in history. I'm baffled that GM doesn't just tell each portion of the story straight - it is compelling enough.
Perhaps someone should send her a link to the UberNerd library!
Best Wishes.
Check out this Litton story:
Our loan was sold to Litton who failed to properly service our loan. They never mailed us statements and refused to give us our loan number over the phone or change our billing address so we could receive our statements.
If you were a servicer, what would you do if some person called up and claimed to be the borrower, and couldn't give you an account number, and wanted you to give him the account number and also change the billing address on the loan?
Would you possibly think "identity theft"? "Occupancy fraud"? (Standard occupancy fraud problem: the borrower claims he will occupy the property, so he has to tell the original lender that the billing address will be the property address. But in fact, the property is vacant. So the servicer mails things to the vacant property, and the borrower wants to just call up and change the address because it's a "mixup."
As written, this entry is an example of the servicer doing exactly what it is supposed to do.
Tanta -
So the complaints of a bunch of self-interested whiners does not qualify as "evidence." I'm with you on that.
But what would qualify as "evidence" that, in GM's words,
some consumers may be losing their homes unnecessarily or that mortgage servicers, who collect loan payments, are profiting from foreclosures.
What kind of evidence are you looking for?
There is a very good story to be written on why mortgage servicing is as bad as it is.
Probably 90% of the horror stories you hear have to do with transferred servicing. In other words, this whole thing we've been talking about--selling off loans hither and yon--has profound operational implications as well as credit risk-loss issues.
My view of the matter is that you have small, incompetent originators closing loans and then selling them to a correspondent lender who uses some low-cost stripped down operation like GMAC subservicing. So the originator screws up the transfer on its end, and the acquirer screws it up on the other end. The consumer is stuck in hell. Sometimes you have a perfectly competent servicer but an incompetent originator: nonetheless, the borrower blames the servicer because, well, the servicer is the one still talking to you.
But this happens because the costs of operational failures are "subsidized" the same way they are in any other industry: layoffs, temping, outsourcing, etc. Any time anyone attempts further regulation of this, to cut down on egregious servicing transfer errors, the industry tells that rates will go up, and the public falls for it again and again.
We are just beginning to understand the "true cost" of the business models that have been in play for the last decade or so. That's a very good story. I wish Morgenson would write it.
What kind of evidence are you looking for?
Well, I would want to see a case where the borrower made the payments, the servicer threw them away or refused to post them, then foreclosed. That would be an "unnecessary" foreclosure.
Then I would like someone to show me how that was profitable for the servicer compared to just taking that borrower's payments and earning the monthly servicing fee.
Nice prose!
[... The] myriad forces that corporate America has unleashed in its endless quest to enrich CEOs and keep you on hold for ten hours as you struggle to understand all that crap on your phone bill or locate your lost luggage...
I first read it as: "...and keep hold on you for ten hours as you struggle...". Works well as a comment on the work-a-day world!
Let's use this figure of $1,366 per loan in "extra" charges from the GM article. Let's say that the servicer nets half of that (which is a lot) after expenses. The servicer goes to all the trouble to drive a borrower into BK in order to get paid $683 in a Chapter 13 repayment plan over 3-5 years? This is more profitable than just posting payments that were actually sent to you?
OK
Litton Loan Servicing Class Action Lawsuit: 2008 Update
Mortgage Servicing Fraud
I think there are some outfits that do this enough that it can be attributed to malice rather than stupidity.
It makes me wonder is there is a secondary market for foreclosed houses that makes this worthwhile to the servicer.
--
"We are just beginning to understand the "true cost" of the business models that have been in play for the last decade or so."
Maybe you should begin to understand the true cost of:
A financial system of the Crooks, by the Crooks, and for the Crooks.
If you believe that any of this (lending related abuses) would have gone on without the blessings of bankers and financiers of New York City, with the blessings of the Fed, then you are either naive, which I doubt, or suffer from blind faith in the system.
Jas
jus me, if Litton is in fact violating RESPA I hope they get busted. What would you expect me to say?
The problem is that in a toss-up between a mortgage servicer and a class action litigator, I'm not sure who I'd pick for Greedy Blood Sucker of the Year.
Now, if you want to make the argument that Litton, or any other servicer, is intentionally violating RESPA in order to maximize its profits, then do so. My guess is that a lot of screwups, like reporting a payment late to the credit bureaus that wasn't late, could be traced to the servicer's "cost cutting" operating procedures and staffing levels that allow too many mistakes.
I mentioned that kind of problem in my post. But the reality of the situation is that if those are "ill gotten gains," then they are overwhelmingly being made off of performing borrowers, not delinquents. There are waaaaay more of the former than the latter. Even if you accuse the servicers of "creating" delinquent borrowers, you still have to show how they specifically make money doing that, as opposed to how they let sloppy operations go on because it looks better on their bottom line, just like the airlines do when they lose your luggage because it beats paying unionized baggage handlers a living wage and tourist-class borrowers don't fly often enough for the airlines to worry about repeat business.
I remain convinced that this sloppy shit is really terribly expensive for these servicers; it's just that, as with fraud, these problems were masked for a long time by the boom. So I'm not denying that there are real competence problems: I am denying that it's an organized conspiracy to profit. It looks to me like a sure-fire way to run your business into Chapter 11.
GMAC subservicing has always had issues with new loan set up. Not an easy thing to do for any servicer, anyway.
The mortgage industry is mostly invisible data tracking, until you reach a decision point. Then you need all of the information, at your fingertips, in a fiduciary, legally binding contractual timeline driven, customer service instant.
How would it be "profitable" for a servicer...
Well, two ways. If they post the checks late, then they get both the payment and a late fee. Second, in ancient times (two years ago) when prices where going up, if they foreclosed on a house, bought it for the amount on the note, couldn't it be re-sold it at a profit?
The second 'course that's less likely today...
Tanta -
In your post, you denied that there was any evidence of it.
You went on for a paragraph that there was no evidence.
It makes me wonder is there is a secondary market for foreclosed houses that makes this worthwhile to the servicer.
Right. We're looking at optimistic estimates of loss severity of 40%; less optimistic estimates of 70%. And in the midst of this servicers are creating unnecessary foreclosures, and investors aren't noticing.
You are aware, of course, that the noteholder pays the tab (outside of Chapter 13). Could all of this rest on a confusion between noteholder and servicer?
Bloomberg has a piece up this morning (the service, not the website) about AHM suing Triad (a mortgage insurer) because Triad is refusing to cover claims on mortgages it says AHM screwed up. This is a very real risk a servicer faces. Thing is, outfits like Triad don't just shrug and write checks to these servicers. In order to believe in a massive forced-FC conspiracy, you have to believe that the real bagholders--investors and insurers--are paying no attention.
In your post, you denied that there was any evidence of it
I stated that there is no evidence of it in GM's article. That is true. There isn't.
She made the claim, and then did not back it up. It doesn't help any to find "evidence" somewhere else.
You are ignoring my point: you have to show how this can actually be profitable to the servicer before you can claim they do it to profit.
Come on. She uses an example of a servicer who listed the mortgage at $1 million when it was really $60,000. That's an embarrassing error. But do you really think the servicer did that because they thought they would get to collect $940,000 in bankruptcy court that they were not owed?
Tanta said:
Right. We're looking at optimistic estimates of loss severity of 40%; less optimistic estimates of 70%. And in the midst of this servicers are creating unnecessary foreclosures, and investors aren't noticing.
Hmmm... note to self: don't argue with Tanta, ever.
(BTW, Tanta, thanks for the UberNerd series. Great stuff.)
The creation of bogus late fees and/or insurance seems to make sense to the servicer though. (Look at the bonanza that credit card companies have turned fees into.) Maybe it's just that they don't care if these then lead to FC - especially if the investor eats it rather than the servicer?
There is so much smoke around Litton, it's hard to believe that there isn't fire there somewhere.
Actually, it still doesn't make sense to me how a servicer or creditor can make money off a foreclosure.
Phoney late charges, BS NODs seem to have happened to a friend of mine. I didn't believe him at first (sure you sent the payments on time, uh-huh) but I looked into it a bit and it seems like it really does happen.
I'm not sure why, though. Seems like a sure route to either BK or the pokey for the lender/servicer. But it does seem like servicers really do systematically force borrowers into FC even when they make payments on time.
I admit I'm hazy on why. It doesn't make complete sense to me either.
You forgot half assed newspaper columnists.
Only slightly OT:
From the BBC: "Foreclosure wave sweeps America"
"According to Claudia Coulton, co-director of the Centre for Urban Poverty at Case Western Reserve University in Cleveland, over 10,000 families - one in eight of all owner occupiers in Cleveland - will face eviction this year..." (emphasis mine)
BBC NEWS | Business | Foreclosure wave sweeps America
The story makes it seem like no-one knows what to do here, so all parties are just mechanically following whatever their preprogramming says to do. I mean, why throw out a woman making payments in a neighborhood where you'll never sell the house again? The moment she walks out, that place is toast. They should pay her to stay while they sort this out.
Tanta Well, I would want to see a case where the borrower made the payments, the servicer threw them away or refused to post them, then foreclosed. That would be an "unnecessary" foreclosure.
Hate to burst your bubble, Tanta, but I see this all the time. Seriously. It happens on low balance mortgages that cost the servicers more to service than they get from their chunk of the interest.
I had to go to court to get one in my family cleared JUST like this. The servicer would not speak to the individual paying the mortgage. Would not look at the checks. They applied the checks to two different accounts over the space of six months, sent a foreclosure notice, and then refused payments. Once we got a court order I had to get statements, recalculate the mortgage balance and lalala! they had over $13,000 in accrued interest that was invalid. I usually advise people in this fix to get certified checks and send those in so they have evidence in court. Once the mortgage was reinstated and properly calculated, they then force-placed insurance for the next three years. I finally gave up.
Other SOP practices for crummy servicers are to deny every year that they have received notice of insurance placement and to force-place their own much higher insurance (provided from an affiliate of course), and to routinely post payments late enough to collect late charges. This summer I polled an office in a company for which I do consulting. I asked everyone if they had a mortgage balance below $50,000, and if they had had this happen to them in the last three years. EVERY PERSON WHO HAD A MORTGAGE BALANCE THAT LOW SAID YES. Not one of those with low balance mortgages had had their mortgages properly processed in the last few years. NOT ONE!
You would not believe how much mortgage business rolls back to small banks from the very phenomenon you deny.
If there are any bankruptcy attorneys out there, please join in.
Once again I am lovestruck by the expository discourse. [swoon]
To my untrained, blurred and clouded retinae, the nut of the whole piece presented above is in the "efficiencies" discovered by firms (all of them, not just mortgage servicers) in the quest for profit. The airlines and telcos cited were perfect examples, but our whole economy is filled with many others.
Hell, even governments get in on the act, moving expenses off of some books and onto others--privatization, they call it. Is the consumer served any better in these efficency-seeking schemes? Yes, and no. . . that's the answer any economist worthy of the title ought to provide. Winners and losers, creative destruction, and all that.
But the efficiency seeking might have gotten a tad unmanageable in the last few years. It is only a matter of time before consumers pull back the curtain and declare that they are not getting he promised value out of the services and goods they've purchased, and they'll recoil, fiercely. I believe that such recoiling will come in the form of seriously curtailed spending, innovation, and speculation; and when that happens, yuck.
So GM writes her article, and nobobdy notices that the real problem isn't some evil vampire sucking their life energy out, one $50 junk fee at a time. The real problem is us, in our largely uncritical quest for all-holy efficiency and the perfection of the market. We're human, and we expect markets to operate at better-than-human levels in the absence of meaningful regulation and oversight.
Ain't.
Gonna.
Happen.
I stated that there is no evidence of it in GM's article.
It doesn't help any to find "evidence" somewhere else.
Huh? An article can't make a simple assertion? All articles do this all the time.
You are ignoring my point: you have to show how this can actually be profitable to the servicer before you can claim they do it to profit.
Yes, I am ignoring that part of your point. If mortgage servicer's are forcing unnecessarily forcing defaults, that's important on it's own, independent of exactly how it's profitable.
"Bankruptcy specialists say lenders and loan servicers often do not comply with even the most basic legal requirements, like correctly computing the amount a borrower owes on a foreclosed loan or providing proof of holding the mortgage note in question."
Perhaps our attorney friends will tell me how it is that servicers have to prove that they are noteholders in a bankruptcy. I suspect that's news to all investors in mortgage bonds, who think they are the noteholders. Are we talking about sloppy filings, in which the servicer failed to include a copy of the note? Or are we really talking about servicers who cannot cough up an assignment of mortgage or deed of trust to show standing to foreclose?
I'm responding to your plea. The servicer is an agent of the trustee, which is the agent of the noteholder, so yes, the servicer is a noteholder in a manner of (legally) speaking. It may even hold legal (but not equitable/beneficial) title to the note, i.e., the piece of paper rather than the payments due under it. Furthermore, it holds the actual notes signed by the borrowers - originals or electronic copies of the originals - which as you said must be included in legal filings.
My guess is she meant the servicer couldn't come up with a copy of the note. I think it's very likely servicers lose notes (I used to work for one). Since the servicing fee has been set at a standard rate by the market, servicer profitability depends on being able to squeeze costs, with predictable results on competence and customer service. No need to suppose malice when stupidity is a sufficient explanation, as someone said.
Good post, of course. I'm afraid I don't think much of the NYT's (or MSM's) reporting in general - too much focus on managing the workload and increasing access to the powerful.
To support my comment above, I refer all readers to this ABANet article.
All a servicer needs to do to increase profits is repetitively dump low balance mortgages. It is very profitable to them to do so. If they have to go to foreclosure, they will recover all their costs. Their real intent is usually just to irritate the borrower enough to get them to refi.
If mortgage servicer's are forcing unnecessarily forcing defaults, that's important on it's own, independent of exactly how it's profitable.
Why would they do it if it isn't profitable?
Furthermore, it holds the actual notes signed by the borrowers - originals or electronic copies of the originals -
Sometimes. Mostly those are held by a note custodian (a bank with a trust department). And thank God for that: you are absolutely right that servicers lose note copies much too frequently.
I am getting the impression that the mortgage servicing business is like the insurance business in that if you are not stupid, greedy or grossly inefficient you can make a living. Not get rich, but make a living. Right or not?
I asked everyone if they had a mortgage balance below $50,000, and if they had had this happen to them in the last three years. EVERY PERSON WHO HAD A MORTGAGE BALANCE THAT LOW SAID YES. Not one of those with low balance mortgages had had their mortgages properly processed in the last few years. NOT ONE!
OK, I have to ask. How many people in that office had a first lien mortgage with a balance of less than $50,000?
How many had a second lien involving tax and insurance escrows?
Of course servicers hate low-balance loans, except the ones that are in the business of servicing low-balance loans. (HELOC lenders, anyone?) But no, I am not convinced that there is a widespread intentional practice of forcing low-balance loans into FC in order to get them off the books. Do I think lenders offer shittier service to low-balance customers? Does the pope know what "ora pro nobis peccatoribus" means? But those aren't the same things.
prepay speeds are so slow on non-agency loans right now that it would seem you'd want to keep those suckers who can perform but not get a refi in your portfolio...
Well, bacon dreamz, I'm with you. You have a performing low-balance loan on which all you have to do is post the check every month (unless it's ACH, which is even less painful). It probably costs you -$60 a year to keep that loan, but you have a bunch of large loans that make you plenty of money, so it all averages out.
Unless you intentionally create more work for yourself on the low balance performing loans, in the hopes that they will refi and you have to write off the premium you paid for them, or you can foreclose and eventually break even if the property liquidation can result in enough cash. OK, well maybe you'd want to post the low-balance loan payments late on purpose, so that you get your 5% of a $90 loan payment. I don't know how you actually do that with a lockbox these days. I know in the old days it was easy to let an envelope with a check in it sit on Euelna's desk for the weekend so that it could be posted late on Monday. If these servicers are still processing payments with an old-fashioned cashiering department, then no wonder they can't make any money off loan servicing. But how many mortgage payments get processed that way these days?
I'm a firm believer that "technological innovation" often just means more moving parts that break in inexplicable ways and are incredibly expensive to fix. So I'm sure that these modern payment processing systems fork up a lot. Why we assume that someone is intentionally intervening in order to create an adverse outcome is, well, a fact of human nature, I guess.
Tanta - I am. Based on my experience.
No, second liens are not involved, because the banks would pick them up in title search. These people never have any trouble refinancing. The bummer is that they often have to pay a higher rate, but after you go through this for months and years at a time, you are willing to do so. Those insurance bills are HIGH.
You're probably wanting to attribute this to GA subprime possums. My brother, who is very financially responsible, bought a house with about 40% down in 2002 or 2003. He lives in PA. The mortgage was through GMAC, fixed, for something below 6%. I don't remember the exact rate. I warned him then to calculate his mortgage balance every few months.
Several years went by, no problem. But he was paying down principal with extra payments, clearly designated a few times a year. Everything was applied correctly although payments tended to be applied late.
A month after his mortgage balance dropped below $100,000, he received a letter from GMAC notifying him that he could draw another $125,000 with no fees, no appraisal. They informed him that his house had appreciated another $200,000 since he had bought it. I laughed at the time.
A few more months, a few more letters. LALA! In the next few months he had to spend days on the phone getting his misapplied payments fixed. He called me in a rage because he'd had to speak to four people one month, then was promised that his principal payment would finally be applied correctly (all of a sudden those principal payments were going into suspense as future payments), and the next month the statement comes and it still hasn't been fixed. I sent him the names and addresses of the PA Banking agencies and the appropriate state laws to cite. After sending a letter with that information, his payments were finally applied correctly.
For some of these companies it's routine. A few months later the problems started again, and he finally got disgusted and paid the mortgage off completely in 2006 with cash.
THIS HAPPENS ALL THE TIME. You said you wanted to know how it's profitable. Believe me, if you dump a good fraction of your mortgages that are low-profit, your numbers look better. There is no real risk to these tactics. I can't even get most of these people to report to the correct agencies, because it's a waste of their time.
Jeez Tanta,expecting GM to be as professional as Paris Hilton is TOTALLY unrealistic.....she is in the running for the "Judith Miller award for excellence in Journalism" and YOU want her to screw up her big chance!
here's a vaguely relevant paper:
http://www.lebow.drexel.edu/PDF/Docs/20071003LoanModificationPaper.pdf
But MOM, what you are describing is an extremely common experience of GMAC customers. Regardless of loan balance. GMAC is the poster child for "low bid" subservicing operations. They could fork up a wet dream.
Sorry to suggest that this might be a case of post hoc reasoning, but it might be. You have one thing happening (a bout of terrible service) after something else (balance dropped under $100K). That doesn't mean one caused the other.
I wasn't assuming anything about "GA possums." I was simply wondering how many people you know with first liens of that balance. If they're second liens, the force-placed insurance thing wouldn't apply, because seconds don't carry escrows.
Misapplication of curtailments (showing the loan as paid ahead instead of principal reduction) certainly do happen. It wouldn't surprise me in the slightest to learn, for instance, that GMAC threw an untested programming change into production on its system that started misapplying all curtailments. They do shit like that, in the never-ending quest to save money by never having a sentient human being intervene in anything ever. And they make sure to hire customer service reps who don't understand how to fix the transaction, or who are not given the authority to do so (making you call back six times to get a supervisor who can "override" the computer).
You think they don't do that on jumbo loans?
They could fork up a wet dream.
good heavens. stick a fork in me, i'm done...
Tanta, when it happens consistently with low balance mortgages, it is a "pattern and practice".
You appear not to want to hear what I am trying to tell you. This seems to be very common in a lot of servicing ops.
Anyway, I give up with you. I have made my decision though. I'm going over to the dark side. By this time next year, I expect to be working for a lot of lawyers helping them to sue the piss out of companies and banks who do this. I've tried everything, and nothing else has worked. It has to be stopped.
Congress is corrupt and paid off, so are most state legislatures, the agencies are understaffed, and I guess there's nothing left to do but resort to the courts.
Obviously I have a profound conflict of interest, and I can't do it locally. I'll have to pick up and move. BUT I WILL DO IT.
Well, two ways. If they post the checks late, then they get both the payment and a late fee. Second, in ancient times (two years ago) when prices where going up, if they foreclosed on a house, bought it for the amount on the note, couldn't it be re-sold it at a profit?
Yes, if you intentionally post a payment late, you get both the payment and the late fee. If the borrower's next check doesn't include last month's late fee, it can be returned as a partial payment or stuck in some suspense account. Ultimately, this can end up showing a delinquent loan. If you let that continue without fixing it, you can end up filing an FC notice and so on and so on. You will rack up all kinds of processing costs, person-hours on the phone, reports to trustees and investors, etc., as well as the other costs of a FC. If the borrower declares BK in order to stop you, you probably won't get your $50 late fee. If you do, by God you will have earned it, at the cost of only maybe $150 in unreimbursable expenses.
You cannot buy a home at the FC auction, sell it for more than you bought it for, and keep any proceeds over your total indebtedness (including past due interest and expenses). Not legally you can't. Excess proceeds belong to the borrower.
That's a basic rule built into the system. Otherwise, during the boom the FC rate would have been astronomical: every time a borrower was a couple days late on a payment, the servicer would have foreclosed to take advantage of a hot market.
There are obviously servicers who pad the payoff statement with a bunch of junk fees--I acknowledged that in my post. I further suggested that judges cram down those loans to teach those servicers a lesson. For borrowers not in BK? Well, if the RE can sell for that much, usually the borrowers sell it.
Just to corroberate GMAC offers several low cost servicing options and you get what you pay for.
If servicing is such a lucrative business right now why are mortgage lenders like CW and IMB trading below book value? Wouldn't they have tremendous "revenue" opportunities from all of the modification and foreclosure activity that's coming up?
You appear not to want to hear what I am trying to tell you.
Well, I think you're telling me that borrowers with low-balance loans get horrible service, including things like servicers not bothering to fix problems, letting the situation get to FC, etc. I agreed with that. Because no servicer I know of wants to expend a dollar's worth of effort on those loans if it can avoid doing so.
You want me to agree that servicers boost profits by intentionally creating problems that will force low-balance loans into FC. I argue that they lose money if and when they do this. I do not see how the additional expense could possibly be worth it for them.
So you think these people are very smart and clever (but scummy). I think, if they're doing this, they're amazingly stupid (and scummy).
Yes, I think I'm right. Sorry you feel like I'm not listening to you. But I do not understand the economics to the servicer part of your argument. If I were going to make money off of late fees by mis-posting payments, I'd do that with the biggest payments I get, since late fees are a percent of the loan amount. The last thing I would do is play this game with tiny payments. Getting 5% of a $90 payment seems like pretty small beer to me.
And this doesn't address the question of how servicing rights on low-balance loans are valued in the first place. You are certainly correct that servicers don't like them, because they're just as much work as a large loan but they throw off less income. Therefore, servicers usually pay a much lower price for low-balance loan servicing rights. This means that low-balance loan borrowers pay higher interest rates. They have ever since "tiered pricing" was OK'd by the regulators. I don't like that situation any more than you do, since it basically punishes people who borrow modestly.
I hope you go over to the dark side, and anyone you find who by incompetence or evilness forced a performing borrower into FC, you smite with your mighty sword. You will still have many, many more performing borrowers who were not forced into FC who are paying higher interest rates so that they are profitable to mortgage servicers. How do you propose to fix that?
"If servicing is such a lucrative business right now why are mortgage lenders like CW and IMB trading below book value? "
Was it last week that the Moz man said servicing fees would lead CFC to profitability? Or was that two weeks ago?
Servicing income is "counter-cyclical." Always has been.
When origination volume drops, that generally means that the loans on your books aren't prepaying (via refi or property sale). Slowing prepayments boost servicer income: all servicers have the same up-front cost to take on a new loan, regardless of its size. The servicing income comes in a dribble: on a conforming fixed rate loan, you get 1/12 of 1/4 of 1 percent of the loan balance per month. So if a $200,000 loan stays on your books for two years, you make ~$1,000 (less amortization) in gross revenue. If it stays on the books for only six months, you only make ~$250. If it cost you $250 to acquire and board the loan to start with, you broke even on the early payoff and you made a profit on the persistent loan.
So right now, slowing prepayments are definitely improving servicing fee income. However, rising delinquencies are offsetting that (more expenses, plus once a loan defaults it's just like a refi, no more income).
Therefore, it can be true that servicing income is carrying an outfit like CFC right now, even while it can also be true that just servicing income (without the fat origination profits) will not be enough to keep them going without major downsizing on the origination side.
You cannot buy a home at the FC auction, sell it for more than you bought it for, and keep any proceeds over your total indebtedness (including past due interest and expenses). Not legally you can't. Excess proceeds belong to the borrower.
I should probably shut up by now, but...
Ummm, who is the "you" in this? The creditor, or anybody? Surely it's possible to buy a house at FC and later sell it for more than the original indebtedness. Maybe there's a one year waiting period, or maybe the above regulation applies to the creditor only? I doubt the debtor has recourse forever on later sales of the property.
If it's just the creditor that cannot flip it for a profit, I doubt it's very difficult for the creditor to create an LLC to take the profits.
jus me, I meant a foreclosing lender.
The lender generally bids the total indebtedness at the sale (loan amount plus expenses). If a third party bids more than that, the third party buys the home from the borrower. The borrower only pays to the lender the total indebtedness. The county sheriff or clerk cuts a check to the borrower for the difference. FC means forcing the borrower to sell his or her home in order to pay off the lender. The home does not belong to the lender unless and until the lender buys it at the auction.
Yes, a third party buyer could flip the property later. No, there aren't many mortgage servicers who pretend to be third parties so that they can pay more than the total indebtedness to the borrower in hopes that they can flip for even more than that.
But even if there were such clever sharks in the boom years, what makes anyone think they're doing this now?
Tanta - in the case of my brother's loan, for instance, of course the payment wasn't tiny. It was the original payment. What was getting really low was the INTEREST portion of that payment. And they weren't not posting regular payments. They suddenly started sticking the extra principal payments in suspense.
Tanta -
Like most of corporate America today, servicers are far too focused on costs (and ignore the broader cost-related concept of value). And, that perversion has really only gotten worse over the years, in my experience.
Lower (or, more appropriately lowest) cost almost always wins in today's servicing environment (Ex. A, Ocwen and the VA contract), even if it comes with a lesser degree of service (to the customer; IR will of course be handled with velvet gloves). I obviously don't need to tell you how a servicing contract gets awarded - needless to say, ranking high in the latest JD Power poll carries about as much weight as a paperclip.
While I generally agree with you that servicers really have no incentive to methodically and intentionally defraud borrowers into FCL, I do not necessarily agree that outcome results because the investors are a stabilizing force.
Investors can be as clueless as the servicers they hire. If you think the servicers only care about cost, you should meet some of these investors. They'll make a servicer look like a loan broker in Vegas who just got his commission check for this week's five jumbo Option ARMs with a 2% YSP and 2 points on the front.
That investor sentiment - drilled in by the ratings agencies - has fostered a general "hot potato" mentality at the servicing shops. No one wants to really solve a problem - because that would take time and money, either of which gets you an earful from the investor (or lowers your bonus). The practical solution is much more political - shoving the problem into a "more appropriate" (read: someone else's) cost center, and let them deal with it. (Suckers.)
And, as you undoubetedly know, reimburseable expenses are limited, more or less, to what is "necessary" and "reasonable". Given that those words can be interpreted however an investor sees fit, most servicers are loathe to spend any money to actually prevent a problem before it surfaces. Even if a preventative measure would cost only $10, the servicer may get stuck with it. Wait for the problem to appear - and even if it will then cost $1000 to resolve, that's really a $10 savings to the servicer.
So, in short, methinks your assumptions on the wisdom and foresight of the investors is a bit overstated. Experience tells me they can be just as myopic on costs as the servicers are, and in fact may be contributing to the servicers' attitudes regarding same.
Keep up the good fight, and keep on rockin' for the kids, CR and Tanta.
While I generally agree with you that servicers really have no incentive to methodically and intentionally defraud borrowers into FCL, I do not necessarily agree that outcome results because the investors are a stabilizing force.
I certainly don't want to overstate the case for investors. It just seems as if we sometimes forget whose proceeds these fees and charges are coming out of to pay the servicer.
Mostly it's the GSEs and the MIs who kick servicers around about Teh Stupid, in my experience.
Well, I would want to see a case where the borrower made the payments, the servicer threw them away or refused to post them, then foreclosed. That would be an "unnecessary" foreclosure.
Then I would like someone to show me how that was profitable for the servicer compared to just taking that borrower's payments and earning the monthly servicing fee.
Jesus H. Jumping on a crutch, Tanta - this is what I've been trying to tell you since I showed up here Day 1!
You want evidence? Hillsborough County Superior Court North, Manchester, NH. Docket #04-E-0025.
Fairbanks/SPS had me in default literally Day 1 of obtaining my servicing rights despite the fact that I was current. Additionally, (and I'll send you a scanned copy of the check and the court testimony if necessary) Fairbanks/SPS accepted a CRR sent payment, received 4/11/02 - three days before grade period expiration, then attempted to get me to state on the stand, under oath, in a court room, before a judge that the date that the check was processed i.e. all that info on the back of cancelled checks, was the date that the check was received. Only problem with that is that the front of the check was stamped "received" 4/11/02.
Throw in the force placed insurance despite having my own policy in place, the dozen+ BPO charges that, by terms of my note, could not be charged to me but had to be paid by the lender/note holder - and yet WERE, in fact, charged to me and you've got a fair portion of Gretchen's story.
There were 281,100 Federal Trade Commission-certified victims of Fairbanks/SPS included in USA/Curry v. Fairbanks. United States of America v. Fairbanks Capital Corp., Fairbanks Capital Holding Corp., and Thomas D. Basmajian (District of Massachusetts).
1,100 opted out of USA/Curry. If this were a random case of a borrower here and there that would be one thing. But at the time of USA/Curry 280,000 represented roughly 40% of the loans in Fairbanks/SPS' portfolio of 750,000. Is it coincidence that Fairbanks stated at one point that at any given time roughly 40% of its portfolio was in default? I'll have to find that quote again as it unfortunately escapes me at the moment. Incidentally, at last count, I believe that Fairbanks/SPS claims that I owe roughly $80k more than I originally borrowed. I'll send you a copy of the latest monthly statement too if you'd like.
More proof? Maxwell v. Fairbanks Quoted from Maxwell "Nevertheless, Fairbanks in a shocking display of corporate irresponsibility, repeatedly fabricated the amount of the Debtor's obligation to it out of thin air. There is no other explanation for the wildly divergent figures it concocted." Schlosser v. Fairbanks . Stark v. EMC Gillean v. Ameriquest Wilson v. ABN AMRO .EMC v. Davis Guzman v. Ocwen
But this sh*t is actually happening. I've got the permanent injunctions and contempt orders to prove it posted on my website. I was one of those 281,100 FTC-certified victims. I opted out of USA/Curry because it simply did not provide enough protection to
the victims involved. I've also got the $13.5 million racketeering suit filed in NH US District Court as well.
You cannot buy a home at the FC auction, sell it for more than you bought it for, and keep any proceeds over your total indebtedness (including past due interest and expenses). Not legally you can't. Excess proceeds belong to the borrower.
Tanta, if a property is purchased by the lender at auction it is usually purchased for the value of the loan plus whatever fees supposedly owed by the FC'd owner. There is no profit there because the lender purchased it for the value of the loan. But upon that auction sale, the property is effectively laundered. Once it is sold by the lender as REO on the retail market in the next cycle of sales the FC'd owner is considered out of the picture. Profits are only returned to the FC'd borrower if the property sells at a profit at the auction. Any sale beyond that and there is no joy for the FC'd borrower. As additional proof, I'm seeing prospectus PSAs being written to include "liquidation proceeds" as "additional servicing compensation".
"In most cases, the master servicer or any servicer will be entitled to additional servicing compensation in the form of assumption fees, late payment charges, or excess proceeds following disposition of property in connection with defaulted loans and as otherwise specified in this prospectus. CREDIT SUISSE FIRST BOSTON MOR ACC COR HO EQ ASSET TR 2002-5
In addition to the servicing fees, each servicer will be entitled to retain as additional
servicing compensation (i) any ancillary income, consisting of late payment fees, assumption fees, prepayment premiums and other
similar charges relating to the mortgage loans it services, (ii) net income from investment of funds in the applicable servicer
custodial account and (iii) any profits from the liquidation of mortgage loans. WACHOVIA MORTGAGE LOAN TRUST, SERIES 2007-A
Additionally, there is at least one case, and I suspect many more, where the local foreclosure mill firm owns the auction house used to auction the FC properties that the mill handles. The mill also owns a title company and a private mortgage company as well. Sat night I checked 21 pending FC auctions handled by the auction house against the public notices in that night's paper. 17 of 21 auctions being handled by the auction co. were being FCd by the FC mill firm. I confirmed another dozen sales like this in another state in which the FC mill is licensed to practice.
This shit DOES happen - just as MoM has asserted. And whether you want to believe it or not, it is not "accidental" or "stupidity". If it happened one in 1,000 or 10,000 I'd say "oops". USA/Curry v. Fairbanks established that it happened in 281,100 out of 750,000. That's not an "oops". That is a PATTERN.
More direct info should start showing up here Mortgage Industry Fraud Forum - Home before too long.
As a loan processor, I see differences in what the consumer thinks they owe and what the servicer says they owe on a daily basis. Most consumers forget that they pay their mortgage interest in arrears, so they are always suprised at what the payoff states, as they always assume the payoff is their principal balance.
If a consumer hasn't made his/her (for example) November payment and we close on November 23rd, then they will have almost 60 days interest added to the principal balance, because the November 1st payment would have paid the October interest on the loan. Just 50 days interest on a $100,000 loan @ 7% is almost $1,000. And this is a common misperception even with more "educated" consumers.
I disagree with a payoff fee and some of the other fees that are charged when a payoff is ordered. It seems though, that a consumer who hasn't paid 4 months interest on his/her loan , real estate tax and insurance, would have a substantial difference in what they thought they owed compared to what the servicer says they owe.
It may not be the norm, but I've had borrowers that were upset that they have to have a hazard insurance policy or that they have to pay their past due real estate taxes, so it seems possible that the consumer could 'cough' be part of the problem.
Also... I filed bankruptcy about 7 years ago, and my attorney used the principal balance from my mortgage statement on the original filing (I kept the house). So using the filing amount compared to the servicers requested amount doesn't seem too scientific as there are so many variables to consider.
My 2 cents.
The home mortgage industrie's "boogey man" is the irresponsible "sub-prime" borrower who's "risky" loan is now in default. I am just a simple civil servant "sub-prime borrower" making mortgage payments on home for the past three years. The dubious title of "sub-prime borrower" has left me staring down the barrel of an ARM which is ready to adjust and almost double my payment. I have payed over a $120,000 in fees and interest to the lender and other persons/entities involved in the loan process (No late fees yet). About $2200 of this money has been allocated towards the principle. So, I am perplexed as to the amount of whining that is being done on behalf of the home mortgage loan servicing industry and lenders. Lenders and the servicing industry have profited from the financial despair that the "fine print" and immpossible terms that these loans create.... Renegotiate terms with your borroweres... or start swimming.