Truth be told, the easiest way to explain
Mortgage Servicing Fraud is to start by explaining the difference between
Mortgage Servicing Fraud and Predatory Lending.
Often cited as being
difficult
to define, predatory lending and origination fraud, refer to a
variety of abusive lending practices that may occur on their own
or in combination. Some of these practices include, but are not limited
to:
Charging excessive or hidden fees at
closing.
Refinancing of loans at no benefit to the borrower.
Offering a loan knowing the borrower lacks the
means to repay it.
Offering a borrower usurious interest
rates.
Using high-pressure sales tactics to sell a
loan.
Failing to properly disclose actual figures at the
closing table.
Failing to provide the legally required
documentation at the closing table.
These activities appear to be more commonly encountered by borrowers with equity in their property, regardless of their prime or sub-prime status.
When it comes to mortgage servicing fraud, these wrongs are usually committed by third-party companies that hold neither title nor interest in the properties whose loans they service. Most commonly these days, servicers are employed by owners of Residential Mortgage Backed Securities or RMBS trusts. Mortgage Servicing Fraud stems from fairly boilerplate language used in the Pooling & Servicing Agreements that govern the relationship between the trust and the mortgage servicer. For instance, many Pooling & Servicing Agreements allow servicers to keep assumption fees, modification fees and basic late fees as what is known as "additional servicing compensation". Language such as this simply removes any incentive for a mortgage servicer to keep a borrower current in their monthly payments because to do so potentially cuts the servicer's profit margin significantly. There are additional means for servicers to make additional profit in servicing securitized loans but this is the most basic means of profit after the relatively small monthly servicing fees that servicers contractually agree to as a rule.
Mortgage Servicing Fraud
A relatively new term,
and not quite in use as the standard yet, mortgage servicing fraud
refers to a variety of abusive servicing practices that may occur
on their own or in combination to a loan after it has closed by a third-party
company hired/contracted by the lender to perform the day-to-day tasks
associated with collecting loan payments. Some of these practices include, but
are not limited to:
Manipulating the accounting of loan to appear in
default despite being current.
Refusing to accept properly tendered payments.
Charging fees for collection letter, inspections
and BPOs.
Charging interest in excess of that actually owed.
Placing payments into suspense accounts without
cause.
These activities are
most prevalent to be encountered by borrowers with equity in their property,
regardless of their prime or sub-prime status. When it comes to
mortgage servicing
fraud, these wrongs are committed by
third-party companies that hold no title nor interest in the properties whose
loans they service.
When it comes to mortgage servicing fraud, these wrongs are usually committed by third-party companies that hold neither title nor interest in the properties whose loans they service. Most commonly these days, servicers are employed by owners of Residential Mortgage Backed Securities or RMBS trusts. Mortgage Servicing Fraud stems from fairly boilerplate language used in the Pooling & Servicing Agreements that govern the relationship between the trust and the mortgage servicer. For instance, many Pooling & Servicing Agreements allow servicers to keep assumption fees, modification fees and basic late fees as what is known as "additional servicing compensation". Language such as this simply removes any incentive for a mortgage servicer to keep a borrower current in their monthly payments because to do so potentially cuts the servicer's profit margin significantly. There are additional means for servicers to make additional profit in servicing securitized loans but this is the most basic means of profit after the relatively small monthly servicing fees that servicers contractually agree to as a rule.
Hybrid Victims
Very often, borrowers
end up being victimized by both predatory lending and
mortgage servicing
fraud, however one is not dependant on the
other to happen.
Why Mortgage Servicing
Fraud
Many people wonder why would a bank do this to a borrower? The first thing you have to understand is that it's NOT a bank/lender doing this to the borrower, it's the entity they have hired/contracted to service the loans. However, in some cases, the bank/lender literally paves the way for the servicer to conduct business in this manner. At the very least there is no excuse for the bank/lender to allow the servicer to harm the borrower, which many have done over the years. There are many resources for the bank/lender to avail themselves of to make sure they are not hiring a bad/crooked/troubled servicer to handle their loans.
As far as why a company would do this, the answer is both simple and yet complex. It all comes to down to money. For years consumers have been duped into believing that defaulted loans and foreclosure are not profitable for "the bank" when, in some instances, it is absolutely more profitable than allowing the borrower to pay off his/her loan especially when taking into consideration the various manners of insurance and/or investment "shorting" and/or "hedging" in which both note holders and servicers are allowed to engage.
For more
detailed information, you can visit the following webpages
:
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