A recent post from a realtor friend of
Date: Mar 29, 2007 10:55 AM
The Subprime Servicing Scam: Beware
by George W. Mantor
Recently I assisted two separate couples
whose stories are so remarkably similar that
it suggests more than coincidence. I was
right. There is something going on.
Both are working couples with children, and
each has a good education. Both wives were
hospitalized, had lengthy absences from
work, and both fell behind on their mortgage
That's bad enough. But what their mortgage
service company did to them next is where
our story really begins. This should be
required reading for everyone with a
Sub-prime lending is really most of us. It
is a category of borrowers with a broad
range of circumstances. We are the people
who are simply unable to prove that we
really don't need the money. The
self-employed, business owners and those
with less than perfect credit comprise this
group. Sub-prime casts a wide net and is
responsible for the record number of
Americans who own homes.
As one might expect, this category of loans
will have a higher rate of delinquencies.
You would think, therefore, that these loans
would be less profitable, but this group of
borrowers pay higher than prime rates. The
real money, as many servicing companies are
discovering, is in the very lucrative
business of targeting the most vulnerable
borrowers and squeezing every last penny out
of them before throwing them out in the
This trend has the potential to make
predatory lending seem generous. Servicing,
the collecting and distributing the mortgage
payments, is the land of opportunity.
Who is in a better position to exploit a
defaulting borrower than a person posing as
someone who wants to help? And it's all part
of a scam planned well in advance.
Companies that are actually collection
agencies are acquiring the servicing rights
to sub-prime loans, not to process checks,
but to put the borrower over a barrel and
then offer more and more expensive
"solutions." True, they don't want your
house, but they do want every spare dime you
can fork over. They don't care one way or
the other what happens to your home; they're
just the servicing company.
Servicing companies have gone from passive
collectors and distributors of other
people's money to active, predatory,
hard-money lenders targeting sub-prime
They might not even wait for you to get into
trouble, but simply insist you are late.
Scam 1. We take so long to process our mail
it could really cost you.
Most mortgages have a grace period of sorts.
If your payment is due on the first, a late
charge won't be imposed until the fifteenth.
But your payment is technically late the day
after the due date.
And that is when the telemarketers of the
servicing firm begin to call. The purpose of
this call is to scare you into believing
that, "due to extended internal processing
times and the unpredictability of mail
delivery," you are going to incur a late
fee. To avoid that hefty late charge, they
suggest stopping payment on your check and
allowing them to take the money directly
from your bank account.
Do not be tempted. It will certainly cost
you at least for the stop payment on the
check, and wouldn't you know it, the
mortgage servicer can also charge you a fee
Scam 2. Please try our easy pay program.
This is the hi-tech version of number three.
Your bank statement shows the payment came
out on time, but the mortgage servicer
doesn't credit the payment to your account
for two weeks. Late fees begin to mount up
while you send copies of your bank
statements showing the withdrawals.
Nonetheless, they insist you are late, and
late on the late fees, and monies start to
Scam 3. We didn't get your payment and you
can't prove we did.
You send your check and they cash it. But no
matter how many cancelled checks you trot in
front of them, they deny receiving payment.
Scam 4. We're here to help in your time of
And if you do actually fall behind on your
payments, they will sniff out money you
didn't even know you had and wring it out of
They will try to get as much money from you
as they possibly can. First as a sizable
down payment and then as high a monthly
make-up payment as you'll agree to. They
take all of your cash and leave you with a
payment that might be 35 percent higher than
the one you already couldn't make.
In the process you'll be asked to sign away
many of your rights and you do it because
they said they care.
They exploit you at your most vulnerable
time, because they know that most people
would do anything not to lose their home.
They intimidate you into suspending judgment
and going along out of fear and
And why? Greed. They get paid a small fee to
process payments, but when a payment is
missed, they can charge whatever fees they
want and keep all of the money. They are
nothing more than shakedown artists
operating in a largely unregulated arena,
who have figured out a way to wring millions
of dollars out of nervous consumers.
And because they can. You didn't choose your
servicing company, they chose you. They
chose you because they know all about you
and know that you will make a good target.
You can't fire them, quit them or take your
business elsewhere. Once they begin to
destroy your credit, you couldn't get
another loan to pay them back even if you
wanted to. And even if you refinance, there
is no guarantee you won't wind up back with
the same servicer.
Lest you doubt their motives, it is a well
known business axiom that you reward the
behavior you want.
Read the remarks of the president of Ocwen
Loan Servicing, Ronald M. Faris, after a
$1.8 million judgment was awarded to a
customer. "We make sure our employees are
aligned with this effort by paying them
incentive bonuses when they succeed in
keeping borrowers in their homes."
Now that sounds noble if not a bit
self-serving. But the incentive isn't paid
for keeping a borrower in their home, it's a
percentage of the money collected. Abuse of
borrowers is their business plan and the
longer they keep them in their home, the
more money they can collect.
Right now all of the focus is on the
predatory loan-makers not the loan
servicers. There isn't any help coming from
lawmakers. As a matter of fact, industry
lobbyists crafted the legislation that makes
it all perfectly legal. Therefore, you need
to protect yourselves.
Start to make your mortgage payment early.
This should help keep you under the radar
screen. Once someone targets you, they will
Don't allow your homeowners insurance policy
to lapse. If the mortgage servicer asks for
proof of insurance, provide it through every
channel available and document it. Print out
and keep email, keep the fax verification
and send every piece of mail "return receipt
requested." And make sure they know you are
doing it. Make the email confirmation part
of your fax, for example.
Never talk to them on the phone. Make them
put everything in writing.
Do not permit any sort of electronic
transfer of funds. You want a paper trail.
Buy and use check writing software that
allows you to update your bank account
online and regularly monitor check clearing
Never sign anything without a professional
review. Forbearance agreements aren't for
you, they are written by the servicer and
designed to strip you of your rights and
every last penny.
Consider paying any late fees and contesting
them after the fact. Withholding payment
from the mortgage servicer in a dispute will
give them just the excuse they need to
deduct it from your next payment leaving you
in arrears on your mortgage payment and late
every month thereafter. The late fees will
skyrocket as your credit plummets leaving
you no way out.
If the industry doesn't act soon, everyone
in real estate and mortgage lending will be
tainted by the consequences of this
astonishing display of greed and deception.
When this scam is finally exposed in the
mainstream media, it will make the Enron
fraud look benign.
Published: March 29, 2007
I do bankruptcy law, so I see a lot
of this. It's not just mortgage companies,
credit card and other debt is also bought
and sold. It all winds up in the hands of
collection companies that use harassing
tactics to deprive you of your money.
It's called preditory lending, and in many
cases, (all of the cases that you mentioned
in your post), it's illegal. I tell all of
my clients this: IF YOU ARE HAVING PROBLEMS
WITH A CREDITOR, TALK TO A LAWYER. many
people get so stressed out that they give up
and pay the money or agree to high interest
"solutions" offered by the creditor.
I advise my clients to research before
they apply for credit. Many companies and
credit unions do not sell the note to other
companies. These lenders are better than
going with a small mortgage company who is
looking to sell your note for a fast turn
Anyone who believes that they are a
victim of predatory lending should talk to a
lawyer as soon as possible. The law allows
damages and remedies for predatory lending.