I’ve written before about how the housing fiasco required fraud and perjury. Well, there’s no end in sight for the damage done by Big Shitpile. The latest chapter involves foreclosing on homeowners who not only are able to make their payments, but have actually done so. How does this Kafkaesque nightmare happen? Yves Smith explains:
It’s called servicing errors and fraud. And whether by mistake or design, when a borrower gets caught in the servicer hall of mirrors of compounding fees and charges, there is no way to appeal and pretty much no way out.
Let’s look at how this begins. A payment is credited as being late. It might actually legitimately be late, the borrower might have neglected to send it in on time. Or the bank might have been slow to process it. That might be simple queuing meets bad controls, or it might be deliberate. Servicers have been found to delay posting checks to incur late fees. Unless the borrower incurs the cost of sending mail via a service that provides proof of time of delivery, the bank can always claim the payment arrived late.
Let’s say the late fee is $75. It will be charged against the next month’s payment. But the borrower doesn’t know that he owes more that month. He gets a mortgage coupon and sends his regular payment in.
Now the servicer starts playing the sort of tricks practiced elsewhere in retail banking. Under the terms of the loan and Federal law, monthy payments are to be applied to principal and interest first, fees second. But the bank applies it to fees first. This makes his second month come up short. He gets charged a fee for insufficiency, and perhaps a late fee too.
Once the borrower has had two late fees, the servicer is often required by the pooling and servicing agreement to get a broker price opinion (BPO). This is a typically $250 exercise in form in which a broker drives by, takes a couple of pictures of the house, and offers a guesstimate of what it might be worth.
Many servicers double dip and also charge the BPO to the borrower as well. So the fees and arrerage charges and interest charges are compounding at a faster rate now.
It takes a remarkably short amount of time for pyramiding fees to add up to a few thousand dollars, unbeknownst to the borrower, until he gets a call from the servicer, or worse, a foreclosure notice.
This is where it gets even better. Even when the borrower hires an attorney, it is remarkably difficult to get the servicer to disgorge its records showing the borrower payment history and its fees and charges. I’ve also been told by attorneys that the reports are difficult to decipher and reconcile with the borrower’s records of payments that have cleared his account. So unless the attorney is tenacious, or has been down this path before, he may not realize that the borrower isn’t nuts when he says he was late only once, maybe twice at most, and doesn’t understand how they bank is now foreclosing.
This is not productive economic activity, to say the least. It’s not even rent extraction, it’s flat-out theft. And has the administration done anything to stop this so far? They don’t need to wait for Elizabeth Warren to get things set up: this is fraud. Investigate.
Oh, I forgot: looking forward, not back. Never mind.