The agency charged with protecting consumers from unfair, abusive and deceptive practices in the financial services market, said that despite new rules that took effect in early 2014, servicers continue to give struggling homeowners wrong information about their loans, or no information at all, often because of technological shortcomings. The report did not name servicers that were noncompliant.
The report released Wednesday says that the agency’s mortgage loan servicer examinations, conducted between January 2014 and April of this year, revealed that information provided to borrowers about loan modifications is sometimes late, incorrect, or deceptive due to technological breakdowns or malfunctions. In addition, consumers tend to “get the runaround” when loans are transferred to another servicer with incompatible computer systems, the report said.
Struggling New Jersey homeowners and lawyers who represent them said Thursday that loan modification attempts still are stymied by mortgage servicing miscues. The stakes can be high for homeowners, said Adam Deutsch of the Westwood law firm, Denbeaux and Denbeaux, which represents homeowners in contested foreclosures.
“A lot of our problems happen when there is a transfer,” said Deutsch, who has represented clients in several recent cases where homeowners were offered loan modification agreements that would lower their payments and help them avoid foreclosure. But before the modifications were finalized the loans were transferred to other servicers, who refused to honor the agreements.
Florence Block of Bernards, who is represented by Deutsch, refinanced a loan in 2007 and has had five different mortgage servicers since then. She is suing three of them and a trust in the Virgin Islands that owns the loan for alleged breach of a loan modification contract.
The complaint filed in January in federal court in Trenton, alleges that one servicer, which agreed to a six-month trial loan modification, did not credit more than $20,000 in payments she had made, nor did it provide her with the required notice when the loan was transferred to another servicer. According to her complaint, the current servicer has refused to provide a permanent modification, even though she has qualified for the change under an agreement with a previous servicer.
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Mortgage servicers “can’t hide behind their bad computer systems or outdated technology,” CFPB Director Richard Cordray said in a statement. “Mortgage servicers and their service providers must step up and make the investments necessary to do their jobs properly and legally,” he said.
The Mortgage Bankers Association, which represents large U.S. lenders and servicers, said the report identifies issues that “can be instructive as servicers execute and refine their compliance programs.” The group also said the report’s usefulness is limited by a failure “to give much of an idea of the scale of the problems or when the problems were identified.”
Large, highly automated mortgage servicing companies such as Bank of America, Wells Fargo and Chase, which send monthly statements to borrowers, collect payments and file foreclosure actions on behalf of the entities that own the loans, have been lightning rods for criticism since the financial crisis. In New Jersey, the state judiciary took steps in late 2010 to block potentially unfair foreclosure actions amid robo-signing and other transgressions by servicers, which prolonged the state’s foreclosure crisis.
Since then, servicers have been pressured by lawmakers to take steps to help keep people in their homes, which often means modifying loan terms to reduce monthly payments, either by lowering the interest rate, reducing the principal or extending the length of the loan, or through some combination of those.
According to Hope Now, an alliance of servicers, investors, mortgage insurers, and non-profit counselors, 2,115 non-government-sponsored loan modifications were made in New Jersey in the first quarter. Since mid-2007, 140,297 such modifications have been provided in New Jersey.
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