By Charlene Crowell –
Action affects all 50 states on unpaid balances of $209 billion.
Families who successfully apply and qualify for a mortgage loan, and then purchase a home, value their investment—and the accompanying opportunity to build wealth. But buying the home is just the first step of securing the American dream of home-ownership.
What many homebuyers soon discover is that faithfully making monthly mortgage payments is not always enough. At the beginning of the process, homebuyers choose their lender—most often a local bank or local branch of a national bank. But they do not choose who services their loan—the company that accepts and processes their monthly payments. That’s because very few lenders also service the loans they make; instead, a third party receives payments, maintains account records, and serves as the first point of contact should questions arise. Often enough, the original lender sells the loan, and the right to foreclose, to a company the homebuyer has never heard of.
Because loan servicers are working from second- or third-hand information, borrowers can be caught in errors created by records that are incomplete or incorrectly posted to accounts. Over the life of a loan, servicers from several different firms may manage a single mortgage loan, and if a borrower discovers something amiss on their loan records, they can find themselves in a financial maze, trying to decipher who did what and when with their faithful payments. Moreover, while these consumers seek to find out what exactly happened, both fines and fees can be assessed, or even foreclosures filed.
Such scenarios are currently affecting 1.4 million mortgage loans in all 50 states, with a combined unpaid principal balance of $209 billion, according to lawsuits filed in late April against Ocwen Financial Corporation. The U.S. Consumer Financial Protection Bureau (CFPB), Florida Attorney General Pam Bondi, and Florida’s Office of Financial Regulation allege a litany of illegal practices affecting virtually every phase of mortgage servicing.
The Florida lawsuit alone affects more than 125,000 Ocwen borrowers. “Enough is enough, said Bondi. “Florida’s distressed Ocwen borrowers should no longer have to endure costly servicing errors and unfair practices.”
Richard Cordray, director of the CFPB, said, “Ocwen has repeatedly made mistakes and taken shortcuts at every stage of the mortgage servicing process, costing some consumers money and others their homes. Borrowers have no say over who services their mortgage, so the Bureau will remain vigilant to ensure they get fair treatment.”
The lengthy and new allegations against Ocwen include:
- failure to credit multiple borrowers’ payments, or to correct billing and payment errors;
- mishandled hazard insurance that led to the lapse of 10,000 borrowers’ homeowners’ insurance;
- illegal foreclosures on at least 1,000 people, although borrowers had been given 30 days to submit explanatory or corrective information; and
- deceptive enrollment and charges for add-on products.
Many of the foreclosures that affected black and Latino neighborhoods during the housing crisis of the last decade were high-cost, adjustable-rate-mortgage (ARM) loans. Mortgage brokers earned financial kickbacks called “yield spread premiums” for selling these loans, while borrowers were kept in the dark about their broker’s secret financial incentive.
“In 2013, the $2.1 billion joint state and national foreclosure settlement was intended to provide compensation to mortgage borrowers who were harmed during the housing crisis,” said Nikitra Bailey, an Executive VP with the Center for Responsible Lending. “Dodd-Frank’s Wall Street Reform Act imposed new requirements for mortgage servicers, and authorized the Consumer Financial Protection Bureau (CFPB) to implement requirements and adopt new rules,” which it did in 2013.
But in recent weeks, members of Congress and President Trump have called for regulatory rollbacks of CFPB’ authority. On April 26, Rep. Jeb Hensarling (R-TX), chairman of the House Financial Services Committee, held a hearing on the Financial CHOICE Act—dubbed the Wrong Choice Act by consumer advocates—which would reverse much of what Dodd-Frank authorized, including CFPB’s independent governance and funding.
Bailey’s concerns were echoed by Congresswoman Maxine Waters (D-CA), who said “This is one of the worst bills I’ve seen in my time in Congress. It’s an invitation to another Great Recession—or worse. This bill is rotten to the core.”
Senator Elizabeth Warren testified at an April 28 committee hearing organized by minority members of the House Financial Services Committee. “Let me be blunt,” she said. “This bill would let big banks, and payday lenders, and financial advisors go back to cheating people with no accountability. And it would unleash the same behavior on Wall Street that led to the 2008 financial crisis. [It] doesn’t solve a single real problem … but it does make some lobbyists happy.”
Charlene Crowell is the communications deputy director for the Center for Responsible Lending. She can be reached at Charlene.firstname.lastname@example.org.