Introduction to the Mortgage Servicing Fraud Scam.

2003

This is a game of heads they win - tails you lose.

 

•  These are not "predatory lenders."  

These companies do not loan money. They operate in the lending industry after-the-fact. They take on a function that a lender doesn’t want - the backroom functions of handling payments, escrow accounts, annual statements, dealing with borrowers, collections, etc. The perpetrators of the loan servicing scam acquire the servicing rights to loans that other companies have already made. (Loans that were deliberately constructed by predatory lenders are ideal for processing through servicers that specialize in aggressive collections or rapid foreclosure processing, but the loan servicing scam can be operated against any mortgage loan if the servicer acquires the rights from the lender.)


These scams are designed and deliberately operated. 

These situations are not errors, mistakes or situations where a servicer’s managers or employees failed to do their job. Their systems are well-designed and state-of-the-art in terms of analytical technology that helps them choose and process their victims. These scams generate enormous profits from a business that is difficult to run, people and litigation intensive and normally only marginally profitable. Many have failed and been acquired (Fairbanks bought several).


You, the borrower, are not their customer. Lending companies and investors are their customers. As a borrower being "serviced" in the scam, you are simply one of millions in an ever-growing pool of what the financial services industry deliberately labels as "sub-prime" borrowers waiting to be taken advantage of.


They have almost unlimited legal resources. If you had the financial resources to have effective legal representation and the documentation to challenge them, they would turn their attention to easier
targets. Of course, because most sub-prime borrowers are not well off and don’t have an attorney, you’re a likely target.


They have leverage and information and will prey on your fears. The fear of possibly losing
your home is the key that unlocks your bank account for them. They know almost everything about you financially and even from an employment and income basis. They are made aware of your inquiries into other lenders about refinancing even without a request for a payoff and that shopping may lead them to target you before you can get out of the loan you’re in.


They are experts with millions of successful cases behind them. The loan servicing industry, including those who founded and are running the servicing scam companies, helped craft the "standard" loan documents in widespread use. They are written entirely for the protection of the lending industry, not the consumer. That situation allows them to manipulate their processes and procedures to push you into a position where they can take funds from you or ultimately take your home, often within the terms and conditions of the loan. Some do go beyond the terms or even break the law and aren’t stopped because the borrower does not actually understand the agreement they signed or the laws and regulations.

 

The path toward losing your home to this scam is actually quite simple. The first phase is designed to fabricate the default, and typically begins with one, or a combination of ways to arm the servicer's records with false data:

 

                 When the servicer decides to manipulate the date the payment is received in order to artificially 

                     create a late payment.

 

                 When the servicer applies part of the payment to something other than principal and interest and
                     creates a partial late payment or deficiency.

 

                 When the servicer decides to "force place" an insurance policy on the property by claiming the
                     homeowner has not provided proof of insurance.

 

                 When the servicer pays your property taxes late, then adds their late penalty to your account
                     without your knowledge. 


Any or all of those processes result in at least one month of the account being past due and a negative note is made in the credit report (which effectively prevents the borrower from refinancing). It also helps the Private Mortgage Insurance carrier keep the policy in effect on the loan, which is why these insurance companies have investments in servicing companies in the first place – a late payment or two allows the lender to keep the insurance in force.

 

If the borrower has anything more than about 10-15% equity in the property, it is to the servicer’s advantage at this point to not aggressively attempt to collect. In fact, if the borrower makes contact, the servicer will engage in delay tactics to avoid resolving the problem in time to prevent default. If the equity position is considerably less than 10%, the servicer does not have as much leverage, nor is the opportunity as great and they will typically be more aggressive in collection efforts and more willing to keep the loan in force.

 

In the case of force-placed insurance, it is to the servicer’s advantage to ignore the borrower and any proof of insurance as long as possible; again, to keep the borrower’s credit status in a negative light and to maintain their relationship with the insurer they contract with. These policies are extremely profitable because they provide absolutely no coverage for the homeowner. They protect ONLY the value of the loan, including interest if the property is destroyed.

 

If the servicer has analyzed the opportunity and marked the property for default and recovery, the next payment received will be rejected as being insufficient. If it is accepted, the application of the funds leaves the loan sixty days past due. Typically, the scam now moves toward formal legal notice of acceleration in order to coerce the borrower into signing a highly-profitable forbearance agreement to somehow "save the home." The servicer rolls thousands of dollars in penalties and an incomprehensible combination of legitimate and illegitimate fees into the agreement and the homeowner is left with no choice but to sign it or lose their home. The amount demanded will be calculated to take as much of the homeowner’s equity as possible.

 

If the homeowner decides to sell the property to get out of the situation and take their equity, they will find the payoff amount (which in the last month of the scam will take longer to get than the amount of time left before foreclosure) strips them of their equity. That combined with their artificially-damaged credit rating helps keep the victim a victim.

 

If the borrower cannot pay the amounts demanded in the forbearance agreement, the servicer will have one of their network of specialized attorney firms foreclose and the property will be sold, typically at a county auction or through their real-estate network.

 

If the borrower signs the agreement, they will soon be recycled through the process with yet more late payments and fees. But in the terms of the forbearance agreement, they may find they have signed away any legal protections they may have already had, including the right to sue the servicer for fraud or misrepresentation.

 

If the homeowner cannot find or afford competent legal representation to stop this fraud, they lose their equity and in most cases, their home. MSFraud.org

Mortgage Servicing Company Fraud From Foreclosure Fish

Posted by nick on December 18, 2007, 11:15 am

Over the past years working with foreclosure victims, it is always amazing to see the complete incompetence of mortgage lenders. When working with these homeowners, foreclosure case workers or loss mitigation representatives go to nearly any lengths to avoid helping their clients. It seems they do anything possible in order to delay a resolution, instead allowing the home to get dangerously close to the sheriff sale before turning down the workout program entirely.

 

In cases where the homeowners are facing the loss of their homes due to negligence or fraud on the part of the lender, the incompetence is especially frustrating. Our observations over years have alerted us to a few of the various ways that banks push paying customers into foreclosure in order to steal the home and extract the largest profit possible at the expense of the homeowners. This type of scam is mostly perpetrated by servicing companies and operates in several ways, all of which we have witnessed numerous times.

 

Homeowners in these and similar situations may feel as if they are the only ones caught up in some kind of Kafkaesque debacle. The lenders play the part very well through their own genuine incompetence at the customer service level. Remaining on hold for three hours a day just to confirm that a fax has been received (when it had not been received any of the previous three times it was sent) is a simple tactic resulting from understaffed loss mitigation departments and increasing foreclosures. But more and more experience and research shows us that these are not isolated events, but carefully planned manipulations of mortgages, resulting in forced foreclosures. Possibly the most common scam that we have witnessed is when the lender places a forced insurance policy on a property.  They claim they have not received proof of insurance and then force the owners to pay extra every month for the policy. Often, they place the insurance without informing the homeowners, who make their regular monthly payment, which is first applied to the policy and then to interest and principal. This makes them late on the bill even though they are paying on time every month. Faxes to the lender of proof of insurance will not convince them, if they confirm receiving the documents at all. Homeowners may only learn of the insurance policy when they are being sued for foreclosure, and assume that a horrible mistake had been made.  

 

Another way that mortgage servicing companies push properties into foreclosure is by paying the property taxes late and charging the late fees to the homeowners' account. The next payment the homeowners make will be applied to the taxes and late fees, while the principal and interest will be partially late. Again, the foreclosure victims may not realize the scam until they are being sued and their home is scheduled to be sold at a county auction. Even then, they may have little idea of how to defend themselves in court against a company with thousands of successful foreclosures behind it who has hired local attorneys that specialize in such cases. The loss of the home may be all but guaranteed at this point.  

 

These are the two most common ways, in our experience, that servicing companies have been known to force homeowners into foreclosure. The deviousness of the scam, combined with the bureaucratic inefficiency of many of these companies, often create the impression that errors have been made that can be corrected, as long as the homeowners can talk to someone, explain what happened, and straighten out the mess. 

 

Unfortunately, customer service centers may be specifically designed to delay the homeowners as long as possible, leading them to believe they are working out a solution, while the attorneys proceed ever more quickly to the foreclosure auction.

Even more unfortunate is the fact that homeowners have little alternative when they become a victim of this scam.

 

Once they are behind in payments or in foreclosure, the servicing company will make absolutely sure that the balance due on the loan strips the property of its equity. This also dramatically decreases the chance of qualifying for a foreclosure loan or other solution, and increases the amount necessary to begin a repayment plan with the company. A house with little equity can not even be sold quickly enough to ensure that there will be any equity by the closing. The servicing fraud scam is one of the most disturbing in the industry, and one every homeowner should be aware of, because the power of the perpetrators so outweigh the victims in terms of money, legal expertise, and previous successful cases. 

http://www.foreclosurefish.com/blog/index.php?print=338

Mortgage - The Frauds

The number of frauds that can be committed by your lender is limited only by the lender's imagination and their estimation of education and financial ability.  If they peg you as financially uneducated and of limited means, your lender is likely to use whatever means he can get away with to force you into foreclosure.

Mortgage fraud is more common than you'd like to believe.  Even large, well known, mortgage companies have been prosecuted by the Federal Trade Commission for unlawful practices.  Google 'Mortgage Fraud' and you'll be shocked out of your chair with the number of hits you get.  You'll find them all, GMACM (which is also Ditech), Countrywide and a host of others. 

Here are some of the names or descriptions of the various frauds mortgage companies/brokers use:

  • Formulated foreclosure/mortgage servicing fraud/closing fraud.  Where the lender rechecks your credit information and your payment history to put you into a situation where you can't afford the monthly payment.  Examples are:
     
    • Yield Spread Premium - This practice was originally intended as a way to avoid charging the borrower any out-of-pocket fees.  However, many feel the intentions have been misguided, and have ended up as just another fee the borrower gets stuck with.  Be careful to review your HUD-1 or Good Faith Estimate to see what this fee is, and why it’s being charged.  You shouldn’t be charged both a YSP and an origination fee.  This would mean the broker is charging you twice.  Please also note that the verbiage can vary, and may read as “par-plus pricing”, “rate participation fee”, “service release fee” and so on.  Make sure you go over each fee to ensure you don’t get duped!

      Brokers will also charge a YSP as a way of providing a “No Closing Cost” loan.  Basically the broker will charge a YSP large enough to offset any upfront fees the borrower would have to pay, and still end up with enough to make a decent commission.  An example would be a broker that charges no points, but charges a YSP of 2% on a $400,000 loan.  The total compensation to the broker is $8,000, and the fees associated with the loan may be $3,500.  The borrower won’t have to pay the $3,500 as it will be subtracted from the broker’s YSP of $8,000, still leaving the broker with $4,500 commission.  It sounds alright, but the rate the borrower receives will be substantially higher than it would be at par.

      Yield Spread Premium or YSP are fees paid by the mortgage lender to a mortgage broker in return for the delivery of a loan that carries a higher interest rate. The higher interest rate is the interest rate above the par rate. A par rate is a rate at zero points. Points are expressed as a percent of the loan. Each point is typically one percent of the loan amount. One point for a $300,000 loan is $3,000.

      In other words, YSP is the money paid to the mortgage broker. This is one way mortgage brokers receive more money for each loan. The mortgage broker will quote a higher (than par) rate and in return receive money back from the mortgage lender. In this case, the lender will pay the broker points for booking the borrower into a higher interest rate.

      Conversely, lenders charge the points to the borrower for rates below the par rate. For example, borrowers will pay points when they buy down the rate. The excess points charged by the mortgage broker go to the lender so that they can receive a lower rate.

      Yield spread premium is a major issue in the mortgage industry. Some interest groups call them “illegal kickbacks” stating yield spread premium is a referral fee from the mortgage lenders to the mortgage brokers. Other critics charge that mortgage brokers steer their clients to lenders who pay yield spread premium so the broker can reap bigger fees. There are some brokers who "price gouge" unsuspecting borrowers. However, mortgage brokers don’t need YSP to price gouge borrowers. The mortgage broker can simply charge more points to the borrower.

      According to the Department of Housing and Urban Development, yield spread premiums serve a purpose by helping to reduce closing costs. In return for a higher interest rate, yield spread premium allow borrowers to pay lower fees at closing. This option helps low-income borrowers to be able to buy a house without having to worry about the huge closing costs. The majority of loans with yield spread premium, the fees are used to offset the borrower’s closing costs. The mortgage broker pays the borrower’s closing costs with the YSP. The difference is what the mortgage broker earns.

      Borrowers are not aware about the yield spread premium until they sign the loan documents. The broker is not required to disclose the amount until the HUD-1 Settlement Sheet is prepared which is a day or so before closing. To avoid a surprise closing, ask for a good faith estimate. The good faith estimate should include all transaction fees – direct and indirect – and the specific services earning those fees. Don’t be afraid to ask questions if you are unsure of anything on the good faith estimate. You should be able to shop from broker to broker and compare total fees and rates.

      There is a lot of controversy surrounding this practice, and an ongoing fight between mortgage brokers and institutional lenders.  Brokers must disclose the YSP, whereas institutional lenders can avoid disclosing it as their yield spread may not be determined until a later date when the loan is sold on the secondary market.
       

    • Escrow shortages - where each year your escrow account is short the money needed to pay your taxes and insurances.  At the end of the year they will give you a choice of adding the shortage to your monthly loan payment if you don't pay the shortage in one lump sum.

      Most people wind up having the shortage cut up and pay it monthly.  But while you're making these larger payments, the servicer isn't collecting enough to pay your escrow items again.  You wind up short again the next year and your payment goes up again.  After a couple of years, you can't afford the payment any longer.  Boom they foreclose and take your home.
       
    • Escrow padding - Adding charges to your escrow that were not agreed upon at the time of closing.  This is where they charge you for insurances they claim you need, your taxes went up, your insurance went up or late fees where they held your payment until it was late.  When the late fee kicks in, that's when they apply the payment and create a shortage in your escrow account.
       
    • Suspended payments - This is where you make your payment every month but they fail to apply the payment to your account.  After 3 months they begin to foreclose on the house.  They know you most likely can't afford an auditor or an attorney to go over your account and determine what the lender did with your payment.

      You can even show them the canceled checks but they'll ignore and foreclose on your home.  This will add thousands of dollars in costs to your loan.  Then once they've sold your home they find those payments but use them to pay the costs of the foreclosure.
      Without the aid of an attorney, you're screwed.  Most people can't afford the $2,500.00+ retainers.

      You can even file a complaint with your State's Attorney General, but the chances of them coming to your rescue, even though you have all the proof in the world the lender set you up to fail, are very slim.
       
    • Force placed insurance - This is where a lender will buy an insurance you either already have or they claim you need.  A perfect example of an insurance that most servicers try to tack on to your monthly payment is "Flood Insurance."  You'll get a letter that says the National Flood Insurance Act of 1994 says you have to carry flood insurance.  They expect that you'll take their word for it an pay the extra amount.  Most times they know the insurance is not available for your property because you're not in a flood zone and it's purchase is voluntary or your town/city is not a participant in the National Flood Insurance Program.

      Since they can't buy the insurance, they are really just pocketing the money.  If you ask them for a copy of the insurance policy they will tell you they don't have to show it to you.  They will refuse to supply you with any information regarding the policy.  Why?  Because the chances are they didn't buy anything.

      Another scam servicers use is the force placing of hazard insurance.  The premium for hazard insurance is usually included in your monthly escrow payment.  Once a year your lender sends your insurance company a payment for a hazard policy and you get a receipt from the insurance carrier along with a policy number and a copy of the new policy.  Even though you've received that from the insurance company the lender claims you're not covered and, like the flood insurance, force place the hazard insurance on your account.  After a couple of months, they notify you that you failed to carry the policy and are now charging you for an additional policy.

      Even if you're luck enough to get them to acknowledge the fact you already had the insurance, good luck getting them to refund the unearned premiums.  If you ask them for information regarding the insurance they claim was purchased, you'll get nothing.  Your out a couple of hundred dollars and no where to turn because chances are you can't afford an attorney and in most cases it's an odds on bet your state won't help you, even if you hand them the smoking gun.
       
  • Unlawful foreclosure -  this is where the lender or its servicer create the circumstances of your alleged default.  Above are some examples of how they do that.  There are strict laws in each state regarding the tracking of mortgage documents and who owns the mortgage note.

    If you happen to find yourself in foreclosure and you see a company listed on the paperwork called Mortgage Electronic Registration Systems, Inc. (MERS) the foreclosure is not going to be valid.  Only the owner/holder of the NOTE, not the mortgage contract, can foreclose on a mortgage.  If you separate the mortgage contract from the mortgage note (both have two different names as the owner/holder) in most states the loan does not exist.

    Here's some other information
     
    • You have the right to demand to see the ORIGINAL BLUE INK paperwork you signed.  If the NOTE can't be produced with your blue ink signature, there is no note that can be lawfully collected against.  Never acknowledge your signature on a mortgage document unless it is your signature in the blue ink you used at the closing.  Anything less than the ORIGINAL document is a forgery and not admissible as legal tender.
       
    • You have the right to demand the alleged holder of the note prove the loan was closed lawfully.
       
    • You have the right to rescind your mortgage up to three years later under certain circumstances.
       
    • You have the right to question anything that you don't understand.
       
    • You have the right to back out of the loan if the "Good Faith Estimate" you received a minimum of 3 days prior to the closing does not match the one at the closing.

    Source: http://wtfnonline.com/cscoops2/Articles/Mortgage-the_Frauds.html

Abuse and Fraud from your Mortgage Servicing Company

By: Nick Adama

 

In the past couple decades, since the government essentially created the abuse-encouraging mortgage servicing industry, there has been a wave of lawsuits against these servicers for a range of activities. Obviously, there is a systemic problem and homeowners need to be aware of it before they are taken advantage of. While there are a whole host of abuse practices these companies engage in, this article will look at five of the most common.

As ridiculous as it sounds, many mortgage servicers misapply customer payments. While they receive the full amount of a payment, they either do not apply it, apply it to the wrong account, or only credit a partial payment. For instance, a payment of $1550 may translate into $1150, creating a $400 per month shortfall that, over time, leads the owners into foreclosure. It may take months or years for the borrowers to recognize the issue and get it corrected, if ever.

Similar to misapplying payments is when a servicing company will just add late fees and property inspection charges related to a default when the homeowners have made all of their payments on time. This can be an outright lie and it is almost impossible to get the companies to admit to this and fix the problem. Instead, the borrowers may have to pay hundreds or thousands of dollars of these junk charges to get their loan current again, or face a fraudulent foreclosure.

Another clerical and record keeping error the companies make is when they force place insurance on a home that already has adequate insurance. The servicer will determine that the level of coverage is not adequate and will buy a policy through an insurer that is much more expensive than what the borrowers could get on their own. Even sending proof of adequate insurance is usually not enough to get the force placed policy removed, and the cost of this policy is passed along to the owners.

Closely related to claiming insurance policies have lapsed and forcing new charges on borrowers is the issue of servicers not paying property taxes. This has occasionally gone so far that the homeowners lost their property at a tax sale, and the servicing company ended up buying the home for just a few thousand dollars. The company keeps the escrow payments for itself, has government-imposed fees placed on the house until it is auctioned, and then buys and resells the house for a huge profit.

Finally, fraudulent mortgage servicing companies often engage in abusive collection practices against their victims. Requesting a simple payoff statement may lead to mass confusion as the servicer and its lawyers make up numbers that change by tens or hundreds of thousands of dollars by the week. Some courts have even found these companies making up payoff figures out of thin air, as they do not even have previous payment histories on loans that they purchase the rights to service on.

When homeowners feel that they are being taken advantage of by a bank or servicing company, they are often right to trust their intuitions. From imposing junk fees and forcing insurance on borrowers, to simply making up numbers out of thin air, the lack of due diligence in many mortgage transactions is astounding. The most important act homeowners can take in these types of situations is documenting the abusive actions and their attempts to fix the situation before the house is lost to foreclosure.

By: Nick Adama

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Nick writes for the ForeclosureFish website and blog, which provide foreclosure help and information to homeowners attempting to hold onto their properties. The site describes numerous methods to avoid foreclosure, including bankruptcy, foreclosure loans, stopping a sheriff sale, and many others. Visit the site today to read more about saving your home while there is still time: www.foreclosurefish.com