What they do:
A mortgage servicer does not loan anyone money. Generally, their entry into the marketplace is after the fact. They perform a variety of services like handling payments, escrow accounts, annual statements, dealing with borrowers, collections, etc. This places them in a unique position to have their hands in a whole bunch of pies at once.
Who do they work for?
You, the borrower, are not their customer. Lending companies and investors are their customers. As a borrower being “serviced”, you are simply one of millions in an ever-growing pool of what the financial services industry deliberately labels as “sub-prime” borrowers.
How do they make money?
They take a percentage of your mortgage payment before they send the balance off the the person who they think owns your mortgage. But that’s only the start. They also control your escrow account (where you deposit money for taxes and insurance each month), they handle the collections process when you fall behind on the mortgage. In this area, they many time are able to keep all of the late fees, processing charges, forced placement of insurance charges, and they the charges and costs in the foreclosure legal process.
Worst case scenario:
Some mortgage servicers actually design and deliberately operate, these scheme. The decisions they make about your mortgage are not errors, mistakes or situations where a servicer’s managers or employees failed to do their job.
Their computer systems are well-designed and state-of-the-art in terms of software that helps them choose and process their victims. These scams generate enormous profits from a business that is difficult regulate and oversee. Here are some of the ways they make money and take your home. Remember, they have no real interest in keeping your in your home permanently. They want you there until you run out of money and they they want to start and initiate the foreclosure process and complete it as quickly as possible.
1. If the servicer has analyzed the opportunity and marked the property for default and recovery. The fear of possibly losing your home is the key that unlocks your bank account for them.
a. They know almost everything about you financially and even from an employment and income basis.
b. Remember they have the computerized records of your application, credit report, appraisals, and much, much more.
c. They are told about your inquiries into other lenders about refinancing even without a request for a payoff. That shopping alone, may lead them to target you before you can get out of the loan you’re in.
2. Then they will attempt to have the next payment they receive, be rejected as being insufficient. They can rely on any number of reasons, but now you are 30 days late.
3. It could be rejected because you’re insurance has lapsed. If that’s the case, they Bob in cubical A, leans over to Betty in cubical B, (who handles forced placement of insurance) and she accepts the handoff.
a. 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; to keep the borrower’s credit status in a negative light and to maintain their relationship with the insurer they contract with. They generally get a percentage of the grossly inflated insurance premium. These policies are also 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.
4. If you are finally able to convince them to take the payment, the application of the funds usually leaves the loan sixty days past due.
5. 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.”
6. 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.
Remember the superior position they have over you. They are experts with millions of successful cases behind them. It may be your first time in this situation, but it sure isn’t theirs.
The loan servicing industry 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.
At some point they will offer you a forbearance agreement. 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 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 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) usually strips them of their equity. That combined with their artificially-damaged credit rating helps keep the victim a victim.