The REALLY Sad State of Mortgage Servicing

In 2003, Chapter 13 trustee Henry Hildebrand III wrote a short piece for the American Bankruptcy Institute magazine entitled the Sad State of Mortgage Servicing. On the front lines of chapter 13 every day, Hildebrand was one of the first people to draw national attention to the problems of mortgage servicing in bankruptcy. The mortgage servicers didn't like the characterization, but years later, even after a Senate hearing and major media coverage of the problem, the description is still apt.

A customer legally tape-recorded his conversation with his mortgage servicer, one of the nation's largest financial institutions (and no, it's not Countrywide!) His attorney shared it with me, and I'm posting some excerpts after the jump. I won't give away all the fun, but as you read, remember that mortgage servicing agents are the people on the front-lines of purported foreclosure prevention efforts. Without better training of servicing agents and regulation of mortgage servicers' financial incentives, is it any wonder that we continue to see loss mitigation stall while foreclosures spiral upward? 

Bob  I was wondering what that charge of $650 was for?
CSR [customer service rep]The charge of $665.30…
Bob Yep
CSR It's for doing (not understandable) expenses. 
Bob They told me once before it was for bankruptcy.
CSR (pause) Yes it is.
Bob What exactly does this mean?
CSR Umm…let me get my manager to advise me…I apologize but I have to put you on hold for one second.
. . .
CSR Ok this is the attorneys’ fee
Bob For what?
CSR For the bankruptcy.
Bob What did the attorneys do?
CSR The attorney is the one that filed the bankruptcy for you.
Bob The attorney is the one that filed the bankruptcy for me?
CSR Yes
Bob I don't understand. I paid my attorney.
CSR You paid your attorney?
Bob I paid my attorney.
CSR Ok.  This is actually showing he put a bill on to your account.
Bob Who is he?
CSR Whoever your attorney was that filed your bankruptcy.
Bob My attorney's a lady, not a he.
CSR Ok.
Bob She didn't put no charge on my acct., because I paid her.
CSR Ok if I could go ahead and put you on hold for a second, I'm going to go ahead and get my manager?
. . . [manager comes on line]
Shane Hey my name is Shane.  I'm the lead on the floor. How are you doing today?
Bob Ok I was wondering what these attorney fees are, you tried to charge me for?
Shane Ok did you pay your attorneys a fee?
Bob Yes
Shane Ok, Well what he is suppose to do…He is actually suppose to send us the money after you sent it to him. 
Bob She is suppose to what?
Shane Send us the money, after you send the money to him.
Bob For what?
Shane For the attorney fees. 
Bob Why would they send them to you?  I paid my attorney.
Shane Yes.  The attorney is supposed to send us the money to take care of the fees of the account.
Bob What are the fees for? 
Shane For going into bankruptcy and having an attorney.
. . .
Shane Let me just take a look at the account real quick.  I'm going to put you on hold, alright? 
(Very long wait!)
Shane Ok it took me a little bit to find this in your account. What happens is when anybody goes into bankruptcy…You hire your attorney, we hire our attorney.  Then the two attorneys work together for the bankruptcy.  You paid your attorney for the fees but when you’re worked with ABN…you didn't pay ABN for their attorney fees. So that’s where these attorney fees are from.
. . .
Bob Who was your attorney?
Shane I don't know.  It was with ABN's attorney. 
Bob Oh Ok.
Shane So the fees just carried over.  They were already on your account…so when we bought you on they just carried over to your account.
Bob Ok, well can you find out who the attorney was?
Shane I don't know if it’s really important who it is, because things were still charged, no matter what.
Bob I'd like to know the attorney.  I'm paying money; I'd like to know what I'm paying for.
Shane That's what you’re paying for…it's when you go into bankruptcy.  They hire an attorney…say if you were with us at the time.  We would hire an attorney…our attorney would talk to your attorney and get the bankruptcy taken care of.  So there are going to be fees because we hired an attorney.  So the fees for our attorney are going to be on the account.  Then you pay your fees to your attorney and it takes care of him…but you didn't take care of ours. So that’s what happens, you didn’t take care of ABN's fees.
Bob I'd still like to know what your attorney did.
Shane He worked out the bankruptcy with your attorney.
Bob He worked out the bankruptcy with my attorney?
Shane Yes.  Those two are the ones who talked during your bankruptcy to get your account into bankruptcy and everything that happens when you are in a bankruptcy.
Bob And you don’t know who the attorney is?
Shane No.
Bob I’d like to know who it is. 
Shane You might be able to talk to your attorney.  He might be able to look it up in his records.
Bob Ok…
Shane Ok.
Bob I don't know.  I’d still like to know who the attorney is.
Shane I understand but…
. . .
Bob Oh ok.  How can I reach you?
Shane I don't have a direct extension.
Bob You don't have a phone number?
Shane No.

Comments

[Patches]

Can I just have one dollar for every time I have heard of or seen a similar situation? I won't be doing this that’s for sure. I would be surfing in Puerto Rico with a villa on the beach!

We are still seeing attorneys’ fees in POCs without the "lodestar" calcs. You know how the serial killer picks out his victim on the movie "The Jerk"? He takes a phone book, closes his eyes and points to a page and there is his victim. You can do that with chapter 13s that have mortgage arrears in them. By no means is it just them. But ya! It’s good to know that I’m not the only one that sees this crap! What’s more is that the contract usually has some clause for attorneys’ fees and bankruptcy. But you still have to prove the fees you charge! They deal in such volume! They may do it 200 times and be caught just 60 times. Since we have been taking them to task and challenging almost every POC, on those fees, we have seen our workload double even triple! Since we have “Pass Thru” Chapter 13s here, we also have to watch out for the amount they say the monthly payment is. Scenario: They file a POC for Arrearage that usually includes an escrow shortage (there is almost always one) then they say the payment is X amount per month. It is that payment that we add to the 13 payments to go directly thru the Trustee to the Mortgage Co. as monthly payments. But the X amount includes an amount to bring them current on the escrow shortage that they filed a POC for! To catch the error we have to review the contract to obtain the P&I payment; look at the county website for the amount they pay yearly for property taxes; subtract the two figures to see what’s left over; estimate what insurance would typically cost per year; estimate for the “reserve” and then make the determination of whether the monthly payment makes sense or not. I reviewed one the other day that didn’t add up. I called the servicers attorney and they had two forced place insurance premiums that totaled close to $4-5K a year! I was all, “sup with that?”. It was also calculating for the escrow shortage! They said they would have to call me back. I’m still waiting, but I am waiting with an objection on file. When you try to call them to see what’s up, they try to go thru their "screen" and say “well on this and this date we paid this for that” so on and so forth. You can’t get caught up in that discussion. It has to be “this is the P&I, this is what you pay for property taxes and that = X what is the rest for”? And make them explain! That’s not even getting into BPOs’, Property Inspections, Misc… etc……

They have been doing it for so long. I mean, I have seen this crap go on since 1995 when I first started in this crazy biz!

[Patches]

Did that Tennessee Trustee Object? If it was a Mortgage to be paid outside, what oversight does the Trustee or Bankruptcy Judge have in that situation? I have a case right now where that is the case. It seems that the debtor would have to bring the action in that situation. It’s not an Objection to claim, it has to be something else... maybe an adversary..??..?? Sorry for posting one after the other..... Just thought of it.

[AMC]

Typically, even if the monthly mortgage payments are paid directly by the debtor, the arrearages are still paid by the Chapter 13 Trustee.

The bankruptcy court would have the same jurisdictional ability to issue an order regarding the mortgage - whether the trustee made the payments, or the debtor(s) paid the regular monthly mortgage payments directly.

What Chapter 13 Trustees who pay "conduit" mortgage payments typically do - if the bankruptcy courts allow it - is file a 'Motion to declare mortgage default cured, original terms reinstated, and payments current', or something similar.

I don't see any reason why debtor's counsel couldn't file the same type of motion after the arrearage has been paid, provided the debtor is current with his or her post-petition mortgage payments. Just plageri... uh, use a Chapter 13 trustee's form as a template for your own Motion.

[Patches]

I will use it as a "template". So simple, so...... right on mannnn! thnx! It's like I just had one of those DUHH moments! If they respond then we can bring in the funky charges. Hellooooooo??? AMC.... Thank you!

[Mike Dillon]

Patches, I knew there was a reason I smelled Sex Wax whenever I read one of your posts...I'll bet you're even a long boarder...;)

Two things, Professor Porter:

1.) Any idea if this is the infamous Shane Stanger on tape that is now working in some sort of supervisory capacity somewhere? I know several attorneys that might want a copy of that recording if it is him.

RANT ON:

2.) "On the front lines of chapter 13 every day, Hildebrand was one of the first people to draw national attention to the problems of mortgage servicing in bankruptcy."

Admittedly, I'm a bit overly sensitive because I've been dealing with Mortgage Servicing Fraud issues for the last seven years but I just can't help getting a tad out of joint at statements like this. Mr. Hildebrand may have been one of the first in the **legal community** to PUBLICY draw national attention to MSF issues in bankruptcy - and an article in American Bankruptcy Institute would only reach so many - but I guarantee that he wasn't the first one to recognize it or attempt to alert the general public to it. All one has to do to realize this is to wade through the WBAL TV archives and find Jayne Miller's 2003/2004 coverage of the Fairbanks debacle. And there are other, earlier examples out there in the media as well.

Victims of Mortgage Servicing Fraud have been absolutely SCREAMING about this problem for at least 15 YEARS now. I know several of them personally. One, a victim of Dime Savings, contacted me to say that my story sounded identical to what they went through 15 years ago with Dime. It's only been within the last 5 years or so that anyone of any media, legal or judicial capacity has actually given any credibility to the idea that servicers have been BLATANTLY victimizing homeowners.

I experienced the same brush off that every other MSF victim has gotten over the last 15 years when I was looking for competent legal counsel for my own case. I actually had three attorneys at separate firms tell me to "quit being a deadbeat and pay your mortgage." Here I am, roughly five years later, with permanent injunctions, contempt orders and a $13 million racketeering action against Fairbanks/SPS, Merrill, LaSalle, and Harmon Law Offices. The PMI Group was fortunate enough to be dismissed from the suit - at least for now. Of course, judging by the cliff diving that their stock has been doing lately, by the time I get to address them again the company may no longer be in existence. Even to this day, I get the same brush off from the legal, political and academic communities.

Granted, stories of abuse from mortgage servicers did sound rather fantastic even ten years ago. But if the legal, judicial or even MSM communities bothered to pay a little closer attention to those homeowners coming forward and making virtually identical claims of fraudulent - and yes, ILLEGAL - behavior of their mortgage servicers, after the first 10 or 20,000 identical claims maybe someone would have realized that there really could be an issue.

I've got a supplemental affidavit from Fairbanks CIO Brent Rasmussen that I found in the USA v. Fairbanks case file in US District Boston a few weeks ago posted on GetDShirtz.com. Mr. Rasmussen basically testifies that even if Fairbanks victims were telling the "truth" about what had happened to them Fairbanks had no way to fix the problem because of the manner in which the company conducted business. Apparently, the company hasn't changed their business platform yet.

If anyone had bothered to actually listen to MSF victims back when the problems first began coming to light there is a chance that the "foreclosure crisis" may not be as terrible as it currently is. I believe RealtyTrac estimated 1.5 million FCs in 2007. In '04, 281,100 homeowners were certified by the FTC as victims of Fairbanks Capital, n/k/a Select Portfolio Servicing. What if as much as 15-20% of last years foreclosures were actually FRAUDULENT?

Colleges and universities COULD be at the forefront of the overall research of Mortgage Servicing Fraud if they wanted to be. Harvard, for instance, was fortunate enough to have Tara Twomey working at Hale and Dorr when she won the precedent setting Maxwell v. Fairbanks in 2002, I believe. Unfortunately, when I called Hale & Dorr and the Harvard Legal Aid Clinics last year and spoke with someone at each I was told that they "aren't set up to handle MSF cases." Nothing could be further from the truth. In actuality, a school such as Harvard has every tool to examine and document Mortgage Servicing Fraud at it's very fingertips should it so chose to use them.

Schools such as Harvard, Yale, Stanford, UPenn, MIT etc. could have the law, psychology, accounting and business schools all working on a joint project to document each and every facet of Mortgage Servicing Fraud. I suspect that various school departments have, in their own way, already done a certain amount of work in the areas. And yet, at least to the best of my knowledge, nothing is being done. Someone please feel free to correct me if I'm wrong.

I know that I'm not an attorney or a professor or anyone of more than average intellect. Hell, I don't even have a college degree. But WHEN is someone going to actually start listening - and more importantly - talking to and engaging Mortgage Servicing Fraud VICTIMS in any meaningful dialog on any kind of measurable scale? The sooner that that happens, the sooner the problem may begin to actually get SOLVED.

Until this happens, and the actual width, depth and breadth of Mortgage Servicing Fraud is understood, people are going to continue to lose their homes to illegal foreclosures. And Mortgage Servicers, their vendors, associates and parent companies are going to continue to reap hundreds of millions of dollars in ILLEGAL profit.

RANT OFF.

[O. Max Gardner III]

The Road Less Traveled Since 1929
Looking at the New Year!
O. Max Gardner III
January 1, 2004.

The Personal Savings Rate, as defined by the Bureau of Economic Analysis of the United States Department of Commerce, is what is left over from personal income after subtracting personal taxes, social security, Medicare, and personal outlays for food, clothing, housing, transportation, etc. Personal income includes wages, dividends, interest, and rental income.

The decline in the PSR over the last 15 years is pretty amazing: in 1990, the PSR rate was almost 8%; by 2004, the PSR had dropped to 1%; and last year the PRS was -1.0%. You may wonder how this could be a negative number. The PSR is the average rate so if 5 people save $5,000.00 per person per year and one person takes $25,000 out of their savings then the average PSR rate for these 6 people is 0. These figures indicate to me that we are on the verge of a major depression.

The second group of numbers that recently caught my attention was the annual amount of Household Debt as a percentage of Disposable Income. In 1990, total Household Debt was 80% of Disposable Income. By 2003, total Household Debt was 110% of Disposable Income and it is projected to reach 130% by 2008. This is bad news at best because the Japanese economy had a 130% of Disposable Income Rate in the 1980's just before entering their long and continuing recession. However, at that time the Japanese had a Personal Savings Rate of 11%. This is not a good sign for the US economy where the PRS is already in the minus numbers and going down.

The historical fact is that as debt continues to grow so do the number of consumer bankruptcy cases. For example, the number of bankruptcy filings in 2003 was 420% of what they were is 1985. During this same period of time, the population change in the United States was less than 0.05%. There have been temporary drops in the number of annual filings and probably will be major drops following enactment of the pending Bankruptcy Reform Act. However, the fact of the matter is that the long term trend is definitely upward and there is absolutely no objective or empirical evidence that this trend will change. The total number of personal bankruptcy filings during the past 15 years has increased by an average growth rate of 10% per year. And, the annual percentage of new filing is likely to jump dramatically as the average debt approaches the level at which bankruptcy is declared.

While the proposed Bankruptcy Reform Act will make it more difficult to file for bankruptcy, it will do nothing to help the economy or to change any of these hard-core statistics. And, by in fact reducing the accountability of the credit card companies for their cavalier attitude in mailing out millions of credit cards, the credit card companies will just be encouraged to continue their practices of extending credit to everyone. These practices do nothing more than exacerbate the dire financial straits we find ourselves in today. And, therefore, the number of new bankruptcy cases will continue to rise notwithstanding reform.

Of more concern, however, is the number of ARMS, or Adjustable Rate Mortgage loans, and the Reset Rates that will be triggered by what I project to be multiple years of increased interest rates. In 2003, 28% of the consumers who originated a mortgage or refinanced an existing mortgage opted for one of these so-called ARMS. Under these loans, the mortgage rate is fixed for the first 2 or 3 years at a “teaser” rate but then the interest rate goes up to the fully indexed margin rate and then can go up every 6 months based on the index. The percentage of such toxic mortgages is expected to increase to more than 50% by the middle of 2005. The indexed interest rates on about half of these mortgages is tied to the Daily or Monthly LIBOR rates or the CMT rate.

The CMT is based on the average yield on US Treasury securities, which rises when the Federal Reserve Bank raises the overnight funds rate. This is the rate that that banks must pay for short term loans. The overnight funds rate has been increased every time the Federal Reserve Board has reviewed rates since September 6 of 2003. The interest rate that the prime consumers received in 2003 on their ARM mortgages was approximately 4%. Since most of these ARMS are tied to the CMT or the LIBOR, they have only one way to go and that is UP!

The bottom line is that things just don’t look very good for the future of the American consumer. And, it seems almost inevitable that this “perfect financial storm” will soon trigger a major economic melt down and another long and very bumpy ride through the Second Great Depression. Hang on folks because I fear that this ride is going to be a very ugly trip. It is pretty scary stuff!

[Patches]

Long boarder and Short boarder! Used to be just a ripper but since I have obtained this gut, I was forced into the Long boarder community. It’s really not as bad as I thought it would be. I catch way more waves now and the crowd is cooler... more knowledgeable. I still break out the "Shorty" when hurricane “swell” hits.

Most of the people I think see nothing wrong with servicers acting that way. Even if they knew that something was amiss, they do not have the means or the time to correct it or seek advice. (Not everyone can put up the fight Mike did; that was sheer determination) Before I came upon this website and Katies’ paper, I wondered if I was the only one that saw this stuff. I knew that it wasn’t just me; I just didn’t know nor had the time to find the “community”. It was only then when I started to feel affirmed in what I thought was going on. (I was just seeing trees and not the forest) It must feel way more isolating for a person who is not in the biz. I can only imagine how it actually feels even though I hear it day in and day out.

[Patches]

Yo MAX! MSN just quoted you! Cool man! I like the pictures of your dogs on your website. Anyhoo, here is the link:

http://www.msnbc.msn.com/id/25707593

[Linden]

Hey Patches, where are you? I'm just learning the ropes in consumer BK, and if you're near me it would be nice to talk sometime. I'm in Santa Cruz, CA.

[Patches]

Santa Cruz? I like Santa Cruz, ate on the pier there a few times. Water was cooooollllddddd! Brrrrr! “Steamers” Cold! I get cold just thinking about it. But...nope! Way down here in CC Texas! Does not mean we can't talk. Hey, it's all federal law right? We both live in "homestead" states right? I can give you some tips and tricks of the trade but no legal advice. Be too happy to converse with you though. I can show you a few things you can show me a few things. I do better with "situational" questions and not so much on "legal theory". I think I can help some on office set up and management, advertising. etc.. Consumer BKs are all about having a system. The better your system, the more money you keep and the less trouble you get in!

[karen young]

I'm sitting here wondering if Professor Porter is aware that some services are now charging %500.00 per modification request. Thoughts ?

[karen young]

I apologize - I have butter fingers today. I'm a new poster to this board. It should have read mortgage servicers - I'm aware of "services" that charge to modify (rip-off) but I'm talking about the servicers themselves are charging $500.00, which, supposedly held in "suspense" and then applied to your payment if accepted - but what happens to the $500.00 if you're denied ?

[Mike Dillon]

The servicer would most likely pocket that fee, Karen. It would be especially true if the Pooling & Servicing Agreement for whatever trust the particular loan was in (assuming, of course that the loan had been securitized) allowed for the servicer to keep modification fees as "additional servicing compensation". If you pull the prospectus of any RMBS, you'll find the PSAs tucked within the 424(b)5s and usually more info in the 8-Ks, 10-Qs and 10-Ks.

Of course, if there is a third party servicer involved, I'd bet heavy money that the loan had been bundled...

Let me guess, Fairbanks/SPSOcwenLittonEMCSaxonWilshireC-wide?
They all use the same business platform. May as well start referring to them that way...

[Heard All the Same]

Yes, they are all the same. But, with Saxon, my loan was paid off and they still wanted me to continue paying them. When that didn't work, they said they did a short sale, and I wasn't in foreclosure. When I asked who they did it with, they told me that there were no records but it couldn't be undone. contact me at [email protected] if you want to do a class action suit. Please!