Tales of a Paralegal: Servicer Abuse

Author: Katie-Lee Harrison, Paralegal
 
A recent article in the New York Times  points to the ongoing problem of mortgage servicer abuse. Loan Complaints by Homeowners Rise Once More (What is the difference between a mortgage servicer and mortgage investor? find out here.)

We have experienced the problems with servicing transfers first hand:

1. We submit a loan modification application to Bank of America.
2. A week later the homeowner recieves a notice that Bank of America will be transferring  servicing rights to Select Portfolio Servicing (or any other number of servicers) next month.
3. So the loan modification sits in limbo until servicing rights transfer and SPS has processed the loan into their system.
4. We call SPS who tells us that although all other records have transferred over, we will have to submit a new loan modification application because they don't receive that information from Bank of America (plus 60+ days have gone by since we originally sent everything and since no one looked at it or reviewed the items they have all become outdated).
5. We resend the application to SPS with updated financial documents and then SPS tells us they have their own version of the required forms and can't use the forms Bank of America had accepted.
6. Finally, months after the original application was submitted and now a second application has been submitted and updated with the new forms, SPS begins to review the loan modification request.

It is a hassle and a pain and there is very little a homeowner can do to avoid such problems. However, there are things we have learned to make the transition as smooth as possible:

• Always keep a copy of the loan modification application and other documents submitted to avoid having to recreate the same information twice.
• When you receive notice that servicing rights will be transferred, look up the new servicer's loan modification requirements onlnine to find out if they have special instructions or required forms (if this information is not available online, you can call the new servicer before your loan has transferred to ask these general questions).
• The new servicer will send a letter with a new loan number as soon as servicing has transferred, prepare a complete loan modification application and write the new loan number at the top of every page.
• ALWAYS include updated & recent financial information when submitting the loan modification application to the new servicer.
• For most servicers, a loan modification application will be uploaded to their system 48-72 hours after it is received - call the new servicer to verify that all of the required documents have been received and sent to the correct department.

We've found that these tips have made the transfer much smoother and more timely. What has been your experience?

Who owns my loan? The difference between Investor and Servicer (part 2)

In Part 1 we defined Servicer & Investor,

Investor: the owner of your mortgage/note (your Investor may change during the life of your loan). The Investor provides servicing guidelines which instruct the Servicer how to handle the loans owned by that particular Investor.

Servicer: the middle man between you and the Investor. Servicers are responsible handling all collection records, activities and communications with the Borrower. The Servicer reports to the Investor.

Servicing rights can also be sold and the loan is then transferred to the new Servicer. Under RESPA and Dodd-Frank, the Borrower must receive notice when a transfer of service takes place. Usually the Borrower will receive two notices; one from the current (and soon to be former) Servicer which will provide the date that the new Servicer will take over and the current Servicer will no longer accept payments, and the second from the new Servicer which will provide additional details regarding the new loan number, whom you can contact for questions and where to send your payments.

Your Mortgage Servicer may be required to provide modifications under certain programs. The Department of Justice and the Attorney Generals have a settlement with the five major mortgage Servicers which requires them each to offer a number of modifications, including modifications that reduce principal. These are often called “DOJ” or sometimes “AG” modifications.

The government HAMP program requires Servicers who accepted TARP funds to provide HAMP modifications to eligible borrowers. HAMP also allows Servicers to voluntarily participate in the program. The Servicer is responsible for contacting the mortgage Investors to solicit and encourage participation for those who may have restrictions on modifications that might otherwise prohibit a HAMP modification. Whether your loan is eligible for HAMP depends on whether or not the Servicer of your mortgage participates in the HAMP program. The only exception being: if your Investor is Fannie Mae or Freddie Mac then your loan is eligible for HAMP despite a non-participating Servicer.

Q. How does the transfer of service affect my loan modification application?

A. Similarly, a Borrower may benefit if their loan transfers from a Servicer that does not and is not required to participate in HAMP to a Servicer who participates in HAMP. However, if the new Servicer is not a HAMP participant, it must still evaluate and provide HAMP modifications to loans eligible at the time of transfer. We have seen a similar trend for DOJ Servicers transferring loans to Servicers outside of the DOJ settlement.

Unfortunately, although mortgage and payment records transfer to the new Servicer, a loan modification application will have to be updated and resubmitted to the new Servicer with the new loan number.

---

Q. What if my loan is transferred to a new Servicer during my Trial Modification?

A. The new Servicer should abide by the Trial Modification agreement or offer. Any borrower in this situation needs to make certain that their trial payments are being sent to the correct location and counted towards their trial requirements.

Who owns my loan? The difference between Investor and Servicer (part 1)

When you take out a mortgage from “Quick Mortgage Bank” (for example), it is common practice for that Mortgage Lender to sell your mortgage/note on the secondary mortgage market. This allows the original lender, “Quick Mortgage Bank” the financial ability to make more loans. The new owner, generally referred to as the Investor (or Mortgagee), may be Fannie Mae or Freddie Mac, another big name bank, or a REMIC trust. A mortgage/note may be sold several times during its existence. (Under RESPA & Dodd-Frank, you should receive a notice each time your loan is sold and to whom it has been sold.)

You may continue to send payments to “Quick Mortgage Bank” or another big name bank who acts as a middle man between you, the Borrower (aka Mortgagor) and the Investor. This bank is called the Mortgage Servicer.

Q. How does the sale of my mortgage/note affect my loan modification application?

A. The investor provides guidelines and restrictions to the way a mortgage can be modified. When a new investor comes into play, your loan may be eligible for additional modification options

For Example: We have seen cases where an investor does not allow modifications in certain situations but when the loan is sold to another investor who does not have that restriction; the borrower’s loan is no longer ineligible and he or she may qualify for a modification.

or your loan may now be restricted from certain changes.

For Example: Some investors restrict changes to length of the mortgage term. There may be a guideline that whereby you cannot extend the existing term of the mortgage. Under the government program HAMP, there are provisions to accommodate such restrictions without disqualifying the borrower from a HAMP modification.

But generally, the sale of your mortgage/note will go unnoticed and will not affect your modification application.

Q. Can I force the Investor to sell my mortgage/note to an Investor who allows modifications?

A. The Borrower has very limited rights regarding the mortgage/note and has no say in the sale of the mortgage/note is sold. However, in a rare circumstance, a Borrower may have defenses in the foreclosure law suit which can be used to encourage the sale of a mortgage/note to a more lenient Investor, if such an Investor is a willing participant.