When a mortgage loan is closed, the origination file is closed and a servicing file is opened. It remains open for the life of the loan. Whether the process goes smoothly or badly depends on both the borrower and the servicing agent.
The servicing agent is the entity that receives the mortgage payment, keeps the payment records, provides borrowers with account statements, imposes late charges when the payment is late, and pursues delinquent borrowers. In many transactions, servicing agents also pay property taxes and insurance with money placed in escrow by the borrower.
Borrowers can choose from whom they borrow, but they can't choose the servicing agent. The agent may or may not be the lender who originated the loan. Servicing is frequently sold. Borrowers must be notified of transfers, but cannot prevent them.
My mail box is stuffed with letters from borrowers who complain about bad servicing. The following is a sample.
'My lender hit me with a late charge when my loan was paid on the 16th instead of the 15th, and for 7 months after that I have been hit with a late charge, even though all payments were made on time."
"My lender did not pay the taxes on time or for the correct amount..."
"My lender bought insurance on my house and added the premium to the loan balance, even though I already have insurance that I pay for..."
"My lender sends me statements that only show the payments, not the balance...I have no idea how they are applying the payment."
Chuck Cross is a regulator for the state of Washington who has investigated numerous cases of this type. According to Cross, "about 50% of the time the consumer is wrong and has misread or misunderstood the process...and in about 50% the lender has erred."
In cases where the servicing agent is at fault, Cross does not know the extent to which the problems reflect deliberate attempts to generate more revenue, or innocent operating accidents. In either case, it is troubling that some of the names that pop up in my mail are among the largest and best known financial institutions in the country.
Since borrowers can't fire their servicing agents, what can they do to protect themselves? If you have been mistreated, you should file a written complaint with the lender addressed to Customer Service. Do not include it with your mortgage payment, which you should continue to make separately. State:
Your loan number
Names on loan documents
Property and/or mailing address
This is a "qualified written request" under Section 6 of the Real Estate Settlement Procedures Act (RESPA).
I am writing because:
[Describe the problem and the action you believe the lender should take.]
[Describe any previous attempts to resolve the issue, including conversations with customer service.]
[If it is relevant to the dispute, request a copy of your payment history.]
[List a day time telephone number.]
I understand that under Section 6 of RESPA you are required to acknowledge my request within 20 business days and must try to resolve the issue within 60 business days
If this doesn't do the trick, you can file a complaint with HUD. You can also sue. According to HUD, "A borrower may bring a private law suit, or a group of borrowers may bring a class action suit, within three years, against a servicer who fails to comply with Section 6's provisions."
You can also file a complaint with the government agency that regulates the servicing agent. Here are web sites you can use to contact these agencies: For national banks, http://www.occ.treas.gov/customer.htm. For Federally chartered savings and loan associations, http://www.ots.treas.gov/contact.html. For state-chartered banks and savings and loans, http://www.lendingprofessional.com/licensing.html. For mortgage banking firms, http://www.aarmr.org/lists/members-IE.html.
If you don't know the proper agency, you can send the complaint to the Consumer Protection Division of the state Attorney General. It will forward it to the relevant state or Federal agency.
Borrowers who are aware that they have a servicing problem might be the tip of an iceberg. All borrowers should periodically check their transaction history to make certain that a) payments are always applied to the balance at the end of the preceding month; b) tax and insurance payments from escrow are correct and there have been no double payments; c) rate adjustments on ARMs are in accordance with the method stipulated in the note; and d) there isn't anything in the history that looks "funny".
Any borrower who does not receive a complete transaction statement at least annually should periodically submit a "qualified written request" for one using the form described above.
