Here's Part I of II
By Guest Blogger: Mike Dillon
What Is Mortgage Servicing Fraud? Truth be told, the easiest way to explain Mortgage Servicing Fraud is to start by explaining the difference between Mortgage Servicing Fraud and Predatory Lending. Here's Part I of II by Guest Blogger: Mike Dillon
There are literally thousands of people like myself facing and fighting illegal foreclosure attempts due to mortgage servicing fraud. My fight has been the result of a company called Fairbanks Capital Corp. Regardless of the fact that they changed their name in 2004, they are the same company, playing the same games with people's lives. While in 2001 we thought maybe this was a problem isolated to this one particular company, we now know that;Fairbanks n/k/a Select Portfolio Servicing wasn't and isn't the only company perpetrating these frauds on the American public.
Let me preface this by stating a couple facts.
1.) I should at no time be considered any kind of legal authority on anything. Period. Just don't do it.
2.) This is simply the manner in which my mind works these days. Nothing I can do about it.
Many people confuse mortgage servicing fraud with predatory lending. Here is a description of each -and why mortgage servicing fraud is a crime that often slides under the radar.
Often cited as being difficult to define, predatory lending and origination fraud, refer to a variety of abusive lending/origination practices that may occur on their own or in combination. Some of these practices include, but are not limited to:
* Charging excessive or hidden fees at closing.
* Refinancing of loans at no benefit to the borrower.
* Offering a loan knowing the borrower lacks the means to repay it.
* Offering a borrower usurious interest rates.
* Using high-pressure sales tactics to sell a loan.
* Failing to properly disclose actual figures at the closing table.
* Failing to provide the legally required documentation at the closing table.
These activities seem to be most prevalent in the sub-prime mortgage market. When it comes to predatory lending, these wrongs usually appear to be committed by brokers and lenders.
Mortgage Servicing Fraud
A relatively new term, but rapidly becoming standard, Mortgage Servicing Fraud refers to a variety of abusive servicing practices that may occur individually or collectively to a loan after it has closed. Mortgage servicers are usually a third-party company hired/contracted by the lender/note holder to perform the day-to-day tasks associated with collecting loan payments. Some of these practices include, but are not limited to:
* Manipulating the accounting of loan to appear in default despite being current.
* Refusing to accept properly tendered payments.
* Charging fees for collection letters, inspections and BPOs.
* Charging interest in excess of that actually owed.
* Placing payments into suspense accounts without cause.
These activities appear to be more commonly encountered by borrowers with equity in their property, regardless of their prime or sub-prime status.
When it comes to mortgage servicing fraud, these wrongs are usually committed by third-party companies that hold neither title nor interest in the properties whose loans they service. Most commonly these days, servicers are employed by owners of Residential Mortgage Backed Securities or RMBS trusts. Mortgage Servicing Fraud stems from fairly boilerplate language used in the Pooling & Servicing Agreements that govern the relationship between the trust and the mortgage servicer.
For instance, many Pooling & Servicing Agreements allow servicers to keep assumption fees, modification fees and basic late fees as what is known as "additional servicing compensation". Language such as this simply removes any incentive for a mortgage servicer to keep a borrower current in their monthly payments because to do so potentially cuts the servicer's profit margin significantly. There are additional means for servicers to make additional profit in servicing securitized loans but this is the most basic means of profit after the relatively small monthly servicing fees that servicers contractually agree to as a rule.
Very often, borrowers end up being victimized by both predatory lending and mortgage servicing fraud, however one is not dependant on the other to happen.
Why Mortgage Servicing Fraud
Many people wonder why would a bank do this to a borrower? The first thing you have to understand is that it's NOT a bank/lender doing this to the borrower, it's the entity they have hired/contracted to service the loans. However, in some cases, the bank/lender literally paves the way for the servicer to conduct business in this manner. At the very least there is no excuse for the bank/lender to allow the servicer to harm the borrower, which many have done over the years. There are many resources for the bank/lender to avail themselves of to make sure they are not hiring a bad/crooked/troubled servicer to handle their loans.
As far as why a company would do this, the answer is both simple and yet complex. It all comes to down to money. For years consumers have been duped into believing that defaulted loans and foreclosure are not profitable for "the bank" when, in some instances, it is absolutely more profitable than allowing the borrower to pay off his/her loan especially when taking into consideration the various manners of insurance and/or investment "shorting" and/or "hedging" in which both note holders and servicers are allowed to engage.
I'm a fan of The Home Equity Theft Reporter blog. Have been for a long time now. One morning last week, I found a post on HET mentioning a story recently aired by CBS Evening News showcasing NY Supreme Court Justice Arthur Schack and his efforts to impart equal justice in his court room. I should likewise make it known that I am a also big fan of Judge Schack. Have been for a couple of years now. Anyhow, the CBS piece focused on a Pat Antrobus and her issues with a pending foreclosure on her Brooklyn, NY home. Initially, I didn't think much of it beyond, "Excellent. Seth Doane and CBS are beginning to get the picture on Mortgage Servicing Fraud." and left it at that.
As I went on with my day, though, the "Antrobus" name kept banging around in my head. I've learned, though my own dealings with a now eight plus year battle against a fraudulent foreclosure initiated by then Fairbanks Capital Corp. n/k/a Select Portfolio Servicing Inc, that when something keeps flinging itself at the back of my skull it's usually looking for attention.
I gave in two hours before finishing Part II, and dove into some research.
UPDATE: You can now read: What is Mortgage Servicing Fraud? Part II .