Jan. 26, 2009 -- Some people are having a hard enough time making their mortgage payments, and now comes news that some mortgage companies don't really know how much their customers owe or didn't credit them accurately for what they've already paid. Oh brother.
It seems pretty basic but the Federal Trade Commission has just settled with Bear Stearns and its subsidiary, EMC Mortgage Corp., for $28 million. (The case was brought before J.P. Morgan Chase acquired Bear Stearns and, in settling the matter, Bear Stearns and EMC did not admit wrongdoing.)
The case opens a window into some questionable mortgage servicing practices. The FTC says, "The companies allegedly misrepresented the amounts borrowers owed, charged unauthorized fees, such as late fees, property inspection fees, and loan modification fees, and engaged in unlawful and abusive collection practices."
The FTC says this is the 23rd case it has brought against mortgage brokers, lenders, and servicers in the past decade.
It's particularly frustrating when you take out a mortgage with one company that you have chosen, and then your loan gets sold to some other company you have no relationship with and that company causes you problems with your payments. Bear Stearns and EMC were very active in buying up mortgages on the secondary market.
The $28 million will be distributed to consumers who were wronged. Already, at least 86,000 redress checks have been sent out. If you were an EMC mortgage customer, you can inquire about the settlement by calling a toll free number set up just to handle this case: 877-225-7510.
As part of the settlement, Bear Stearns and EMC agreed not to engage in the problematic practices anymore. But could other mortgage servicers be doing something similar? Here's what to look for: When your bank sells your mortgage to another institution, you should get two notices, one from your old bank, at least 15 days before the transfer and another from your new bank within 15 days after the transfer.
Avoiding Mortgage Scams
The new bank is not allowed to change the terms or rules of the loan. And if you accidentally send your payment to the old bank, there is a 60-day grace period during which the new bank is not allowed to charge you a late fee or report your payment to the credit bureaus as late.
On a side note, con artists have been known to send people letters claiming to be their new mortgage lenders and directing them to send their money to them instead of their current mortgage lender.
Public records of home purchases provide enough information for crooks to pull this off convincingly. So if you receive a notice saying you should send this big chunk of money to a new location, I recommend looking up the customer service number for your original mortgage company on your last statement (don't use any phone numbers provided in the letter in case they are fakes and part of the scheme) and calling to confirm that your mortgage has been sold.
Other things consumers run into: Some mortgage companies won't accept the homeowner's insurance you have on the house, and will charge you for what's called "force placed insurance" instead. This insurance is not to protect you, it's to protect the bank. And it's often more expensive than market rate. So pay attention to your mortgage statements and other notices, and be on the lookout for line items about insurance. If you feel your own insurance policy is adequate, send a copy to the bank and demand a refund for the force placed insurance premiums.
Many consumers report paying their mortgage on time, only to have the mortgage company fail to credit it on time and charge them a late fee. This is where it might be worth having an automatic payment deducted from your checking account so you know you've paid on time and there is a written record of the payment. If you don't like the idea of online banking, then be prepared to keep paper records like checking account statements and canceled checks.
No matter what kind of trouble you run into with your mortgage servicer, you should know that complaining in writing holds special power. The Real Estate Services Protection Act requires mortgage servicers to respond promptly to written inquiries from customers. These letters have a fancy name, "qualified written requests" that you may want to use in your letter to show you are in the know. Once the mortgage company receives your letter, it has 20 days to acknowledge it and 60 days to correct your account or explain why it believes your account is accurate.
Don't Hold Back Payments
While you wait, you may be tempted to withhold the disputed amount from your next mortgage payment, but don't do it! This will only result in late fees, a black mark on your credit report for an incomplete payment and possibly even foreclosure proceedings.
Need help doing battle with a mortgage lender? HUD, the Department of Housing and Urban Development is the place to turn. HUD can also refer you to a nonprofit housing counselor. The HUD hotline is 800-569-4287.