Reports of Mortgage-Servicing Errors on Rise
February 11, 2014
Mortgage foul-ups are accounting for a growing number of complaints recently filed with the Consumer Financial Protection Bureau. As of Jan. 31, nearly half of the 187,818 complaints were about mortgages, loan modifications, and foreclosure activities by servicers.
CFPB also has been sending investigators into mortgage-servicing firms to check their accounts and uncover any “unfair and deceptive practices.” The bureau's auditors report finding some of the following offenses so far:
- Private mortgage insurance premiums, which can increase a monthly mortgage payment by up to a few hundred dollars a month, were not always found to be canceled properly. Servicers are mandated by federal law to stop collecting private mortgage insurance premiums once the principal balance on a mortgage reaches 78 percent of the original value of the home. But CFPB found cases of a servicer falsely telling a borrower that the premium payments could not be canceled unless the loan was more than 2 years old, as well as cases of servicers not returning excess mortgage insurance payments to borrowers within the 45-day requirement that federal law mandates.
- "Biweekly" mortgage payment plans weren’t always performed correctly by some servicers. The biweekly payment option requires half a month’s payment every two weeks rather than a full payment once a month. Such a plan can accelerate a payoff on the loan. But CFPB investigators uncovered a company that submitted payments monthly instead of biweekly and kept the extra money in its own account until the end of the year. The servicer would then make an extra monthly payment — which was less beneficial in the end to the borrower.
- Misreporting of mortgages to national credit bureaus: In some cases, borrowers whose mortgage payments were lowered were then reported to have been foreclosed on. Also, some short sales were being reported as foreclosures. Both types of mistakes can greatly damage a borrower's credit score.
- Several incidents have been uncovered in abuses in the transfers of servicing. Investigators found that some servicers had mistreated borrowers whose loans had modified payment terms after the servicing was transferred. For example, rather than honoring the modification terms, some servicers would insist on independently determining whether lower payments were offered properly by the previous servicer, which caused delays and extra paperwork for borrowers.
Source: “Mortgage Servicer Shenanigans Keep Consumer Watchdog Busy,” The Los Angeles Times (Feb. 9, 2014)
Updated: May 29, 2020