Homeowners are citing abuses by companies supposedly helping them avoid foreclosure.
A growing number of homeowners trying to avert foreclosure are confronting problems on a new front as the mortgage industry undergoes a seismic shift.
Shoddy paperwork, erroneous fees and wrongful evictions — the same abuses that dogged the nation’s largest banks and led to a $26 billion settlement with federal authorities in 2012 — are now cropping up among the specialty firms that collect mortgage payments, according to dozens of foreclosure lawsuits and interviews with borrowers, federal and state regulators and housing lawyers.
These companies are known as servicers, but they do far more than transfer payments from borrowers to lenders. They have great power in deciding whether homeowners can win a mortgage modification or must hand over their home in a foreclosure.
And they have been buying up servicing rights at a voracious rate. As a result, some homeowners are mired in delays and confronting the same heartaches, like the peculiar frustration of being asked for the same documents over and over again as the rights to their mortgage changes hands.
Wanda Darden of Riverdale, Md., has been bounced among three separate servicers since January 2012. Each time, the mix-ups multiply. “I either get conflicting answers or no answer at all,” said Darden, 62.
Servicing companies like Nationstar and Ocwen Financial now have 17 percent of the mortgage servicing market, up from 3 percent in 2010, according to Inside Mortgage Finance, an industry publication.
At first, some federal housing regulators quietly cheered the shift to the specialized companies, thinking that they could more nimbly help troubled homeowners without the same missteps. But as the buying bonanza steps up, some federal and state regulators are worried that the rapid growth could create new setbacks like stalled modifications for millions of Americans just as many were getting back on track from the housing crisis.
This month, New York state’s top banking regulator, Benjamin Lawsky, indefinitely halted the transfer of about $39 billion in servicing rights from Wells Fargo to Ocwen.
Katherine Porter, who was appointed by the California attorney general to oversee the national mortgage settlement, says complaints about mortgage transfers have surged, adding that the servicing companies have “overpromised and underdelivered.” Her office alone has received more than 300 complaints about servicing companies in the last year.
Top officials with the federal Consumer Financial Protection Bureau, which oversees the specialty servicers, are scrutinizing the sales to ensure that homeowners don’t get lost in the shuffle.
“The process should be seamless for consumers,” said Steve Antonakes, a deputy director at the agency, which has put the number of homeowners at risk because of problems with servicing companies in the thousands.
The servicing companies defend their track records, saying they have had success in keeping borrowers in their homes. Ocwen pointed to its investment in customer service, while Nationstar emphasized that it assisted 108,000 homeowners with some form of modification or other repayment plan in 2013.
Several factors have been benefiting the servicing companies. For one, the banks are eager to hand off some of their more challenging loans, and the regulatory headaches that come with them.
Despite the boom, some regulators and housing advocates say that the servicing companies are not doing enough to help homeowners keep their homes.
A Montana couple, Guy and Michelle Herman, thought they had finally won an agreement with their lender to reduce their mortgage bill and save their home after more than three years of fighting foreclosure.
A few months later, however, their mortgage modification appeared to have vanished. Their lender, Bank of America, had sold the right to collect their monthly mortgage payments to Nationstar in July.
“I feel like we got so close to the dream of keeping our house and suddenly it’s gone,” Michelle Herman said.