16 CFR Parts 317 and 318: Mortgage Acts and Practices Rulemaking
One deceptive practice that I have encountered is a servicer rejecting a request for a fee breakdown for past due balances. Many times, the fees will not be disclosed until a modification offer has been made. I believe that this is an unfair practice as the homeowner is left in the dark of fees and charges made on the account. When they are disclosed, it is in a high pressure situation where the consumer has little time to question the fees. The homeowner risks going through the arduous task of reapplying for another workout agreement.
The consumer should be given the consumer an uninhibited right to a paper copy of the accounting of fees and charges due when involved with a loss mitigation workout. This gives the consumer added transparency throughout the workout process in a process that is heavily shrouded and foreign to everyday consumers. This approach will have a very limited affect on competition on the lender side. It is only a right to those who request and strengthens the ability of consumers to avoid accepting fraudulent and unwarranted fees and costs.
Many servicers also fit consumers into workout agreements they have no ability to repay. Some servicers refer loans to representatives who contact consumers and use deceptive means to pressure clients into entering into workout arrangements that they cannot possibly afford. They pressure clients into misrepresenting expenses, many times changing information provided, and the client never has a chance to see what information is entered on their behalf. The practice hurts not only the consumer but the investors who rely on the servicing entity to handle loss mitigation matters as the client makes one or two payments and then depletes all possible means. Then, the consumer defaults under the plan. The servicing entity then red flags them, and charges them more fees, and gives them a harder time in pursuing workout options.
Over the phone financial interviews should be prohibited unless a paper copy of the results is provided to the consumer to sign. Also, the practice of fitting a consumer into a “modification or special forbearance trial plan” which raises the monthly payment by $200 or more must be in written form, signed, and the servicer must have a reasonable means to believe that the customer can support the increased payment.
Over the past year, loss mitigation has evolved dramatically. I personally believe that many servicers are making strides to mitigate loss in the true sense, but there are some who treat it as an extension of collections. Consumers who are stuck with servicers who treat loss mitigation as collections are lulled into a false sense that the servicer is trying to help them. The collection warning with communications does not go far enough to avoid such abuses.
To explain this point, I would like to share an example of someone that I have met who was in the midst of navigating the workout process with their loan. They had been in contact with the servicer many times. They received a call one day, where an unscrupulous collections representative represented that they were with loss mitigation. They proceeded to tell this person that the workout package was denied, the home was going into foreclosure, and would be sold by the end of the week. This person convinced this struggling family to go to relatives, drain the remainder of savings and retirement and pay him $9000 to avoid the sale. The person also explained that if they paid that they would have the workout request reinstated and a better chance going forward. They did, and later found out there had been no sale date, and the file was denied because they were current once again. They have continued to fall behind.
I believe that the consumer should be afforded a pause in collection calls (not foreclosure) while a workout option is being sought. This approach may help clarify the deceptive line between collections and loss mitigation. Also, there should be rules against blurring the lines between collections and loss mitigation as it has and continues to harm struggling consumers.