You may think your mortgage lender holds your loan for the life of the loan. However, in today's market, mortgage servicing companies often buy the rights to service mortgages, which means a company other than your lender is basically collecting and recording your monthly loan payments. If you don't know who's servicing your mortgage, you probably also don't know what your rights are, which puts you at risk for mortgage servicing scams.
Take EMC Mortgage Corp., a mortgage servicing company operated by JP Morgan Chase, which late last year was ordered by the FTC to pay $28 million to settle charges related to unlawful practices in servicing consumer home mortgages. Some of these EMC consumers had their credit reports ruined or were charged unlawful fees -- others even had their homes mistakenly foreclosed on, although they had the money to pay.
What's more shocking is this account, where a former EMC employee revealed that mortgage servicing companies can profit more when they keep mortgages in default, and mortgage servicers are given incentives to avoid communication with homeowners, so they can collect late fees and penalties.
What do you need to know to avoid this type of mortgage servicing nightmare? Here are the five biggest traps in mortgage servicing, with tips from the Federal Trade Commission on how you can stay safe.
Mortgage Servicing Trap #1: Getting charged late fees due to transfer of the mortgage servicing. Make sure you are not charged for late payments during the transfer of your loan. You're supposed to receive two notices-one from the lender and one from the new mortgage servicing company-at least 15 days from the date of transfer. There is a 60-day grace period during which you cannot be charged a late fee if you send the payment to the wrong company.
Mortgage Servicing Trap #2: Getting charged for late payments by the mortgage servicing company, even though you've made your payment on time. Keep complete records of all your payments, including your billing statements, bank account statements and cancelled checks. If your mortgage servicing company has your account history on its website, check this often as well. If you feel the mortgage servicing company has incorrectly charged you a late fee, write a complaint letter and keep a copy of it with your payment records. Send the letter via certified mail, or fax it and keep the transmittal confirmation. In the meantime, as you're getting the matter sorted out, whatever you do, do not stop making your mortgage payments.
Mortgage Servicing Trap #3: Getting charged for force placed insurance. If you don't maintain the requisite property insurance on your home, your mortgage servicing company can purchase an insurance policy on your behalf. Known as force placed insurance, this provides you with a one-two punch: less coverage at a higher rate. Basically, the mortgage servicing company is trying to protect itself; the fact that it'll be more expensive for you is not their concern. To avoid this, make sure you read all correspondence your mortgage servicing company provides. If the mortgage servicer asks for a copy of your property insurance policy, send it to them promptly, and keep a copy of whatever you send along. If you find that your mortgage servicing company erroneously charged you for force placed coverage when your existing coverage was accurate, then provide them with a copy of your policy so they can remove the force placed coverage and refund you for the cost. Make sure you get that refund from the mortgage servicing company as well as a refund of any late fees or interest they charged you due to their error.
Mortgage Servicing Trap #4: Getting charged excessive fees. Make sure to review all of your billing statements, checking to see whether all the fees the mortgage servicing company charges are legitimate and not excessive. If you don't understand certain fees, write the mortgage servicing company an inquiry asking for an itemization and explanation of the fees, and keep a copy of your letter. And anytime you request a service from your mortgage servicing company, make sure you ask whether that will involve a fee and, if so, exactly what it is.
Mortgage Servicing Trap #5: Having your credit ruined. Sometimes mortgage servicing companies send incorrect payment information to credit bureaus. If this happens to you, contact both the credit bureau and the mortgage servicing company in writing, telling them what information you believe is inaccurate, with copies of documents to back up your claim. Include a copy of your report with the disputed items circled, and send the letter certified mail. Keep copies of all of your correspondence in a file. Credit bureaus are required to investigate these claims, typically within 30 days. They will forward this information to the mortgage servicing company, which must then investigate and report the results to the credit bureau. If investigation concludes they were mistaken, the mortgage servicing company is required to notify all national credit bureaus, and the credit bureau will give you written results and a free copy of your report with the recorded change. If you request it, the bureau will also send notices of the correction to anyone who received your credit report in the previous six months.
If you suspect your mortgage servicing company is fraudulent in its practices or has not appropriately responded to your written requests, you can contact the FTC, your local or state consumer protection office, the Department of Housing and Urban Development and/or contact an attorney to find out your legal rights.
The 5 biggest mortgage servicing traps