Mortgage Servicing Industry, You Are In The Fed's Sights

11/16/10 (People Port) Fed Governor Sarah Bloom Raskin speech at the National Consumer Law Center laid out today's Mortgage Servicing Industry's problems. The problems, fraud, abuse, have been around for years.

• The padding of fees, such as late fees, broker-price opinions, inspection fees, attorney's fees, and other fees.


• The strategic misapplication of payments so that the homeowner's payments for principal and interest due on the loan were improperly applied to the servicer's fees, sometimes improperly causing the loan to be considered to be in default.


• The inappropriate assessment of force-placed insurance, with premiums of two to four times the cost of standard homeowners' insurance, which in turn caused servicers to collect these premiums before applying the payments to principal and interest, precipitating foreclosure.

Those were observed during her tenure as Maryland's Financial Fraud Commissioner. Not better now. This Mortgage Servicing Industry is a relatively recent invention. They were not built to provide sustainable alternatives to foreclosure. As regular People Port readers know, there are firms that saw the problems early, moved rapidly to protect homeowners. The jokes about Mad Maxine ripping through the industry, in 2008, are often pointed to. Some, the cost of losing a homeowner, is just to high. Even when both spouses found themselves unemployed.

Some servicers are only paid fee for service. Congress put one into law that attempted to align the servicer's interest with investor, homeowner. The design assumed housing prices -could not go down- across the entire country, globe. Speculators would simply walk in, drop off their key, when a sustainable rent could not be had. Today, a few homeowners, are earning rents while in foreclosure. You and I wonder how this event never made it into a bankable business plan, designed (they claim) by the best minds.

Our Federal Reserve is now on this industry. The new financial reform legislation gave the unambiguous marching orders. You may read her full speech here.

Article by
People Port