Homeowners in Miami and South Florida facing foreclosure should understand what they are facing. The Associated Press recently investigated the loan servicing industry which collects payments, approves modifications or short-sales, and represents the Lender. Their reports suggests that many loan servicers do not play by the rules.
The issue is bigger than Miami-Dade county and bigger than Florida. Homeowners facing foreclosure around the country are suing their loan servicers for harrassment, forced placed insurance manipulations and illegal fees. Some loan servicers are accused of delaying the process of loan modifications, short sales and payoffs, and graceful exit (walkaway) agreements to charge more fees and earn more profits.
President Obama has given billions of dollars to major loan servicers like Wells Fargo, Bank of America, Citigroup and JPMorgan Chase to help homeowners in foreclosure. Yet, these companies are being sued for abuses by the very homeowners they are being paid to help. The smaller players in the loan servicing industry, the ones that service subprime loans and loans in default, are some of the worst offenders.
Mortgage loan servicers are middlemen who collect homeowner’s payments and send the money to loan owners. They are the link between lenders and borrowers and are charged with negotiating loan modifications under President Obama’s $50 billion mortgage-modification program. The Government pays the servicers if the borrower stays current on payments for at least three months after a loan modification.
Borrowers have sued loan servicers for various illegal practices. Charging illegal fees and engaging in illegal collection practices are common complaints. Some loan servicers are accused of foreclosing on homes prematurely and proceeding with foreclosure after agreeing to a loan modification. Others are accused of misleading customers about whether they qualify for a loan modification or the amount of their new payment. In many cases, servicers allegedly told borrowers to stop making payment during the application process and then moved to foreclose.
The government needs the loan servicers because they are the primary link between the investors who indirectly own their mortgages through securities and borrowers. The government program pays loan servicers over $5,500 per loan modification. However, they only get paid after the homeowners make three monthly payments on time.
Under President Obama’s program, dozens of loan servicers are now paid to negotiate loan modifications that reduce mortgage payments to less than 38 percent of the borrower’s gross monthly income. There are several ways to modify a loan. The servicer may reduce the principal or the interest rate. It can extend the term for repayment. The problem is that any of these options means the loan servicer makes less money.
Loan servicers earn less than half a percent of the value of the loans in their servicing portfolio. The larger the mortgage, the more fees the servicer earns. Loan servicers also make money through late fees and charge hundreds of dollars to foreclosure a mortgage.