Abusive mortgage servicers profit from government help

WASHINGTON -- Billions of dollars the government is spending to help financially pressed homeowners avert foreclosure are passing through — and enriching — companies accused of preying on the people they're supposed to help, an Associated Press investigation has found.

The companies, known as mortgage servicers, are middlemen who collect monthly payments from homeowners and funnel the money to the banks or investors who hold the loans.

As the only link between borrowers and lenders, they're in the best position to rework the terms of loans under the government's $50 billion mortgage-modification program. The servicers are paid by the government if the changes keep homeowners from falling behind on payments for at least three months.

But the industry has a checkered history. The AP found that at least 30 servicers have been accused in lawsuits of harassing borrowers, imposing illegal fees and charging for unnecessary insurance policies. More recently, the companies also have been criticized for not helping homeowners quickly enough — delays that lead to more fees for homeowners and profits for servicers.

The biggest players in the servicing industry —Bank of America, Wells Fargo, JPMorgan Chase and Citigroup— all face litigation, some of which has led to settlements with homeowners. All will receive federal money to modify loans.

But the industry's smaller players, which specialize in servicing riskier subprime loans and loans already in default, face harsher accusations that they systematically abused borrowers.

"The irony is, in essence, the government is paying servicers to do their job, which is to do loan modifications where appropriate," said Kurt Eggert, a law professor at Chapman University in Orange, Calif. "And that's not a part of their job they were ever especially good at."

The Treasury Department says it has to work with all servicers, no matter what their records. Refusing to work with a bad player would "deprive homeowners who have mortgages with that servicer from getting modifications," Treasury spokeswoman Jenni Engebretsen said in a statement.