Sure, you make the monthly mortgage payments, but what about when you sell the house? How much do you really owe? Or if you miss a payment, what are you supposed to pay? And, God forbid, if you had to file for bankruptcy, what would it cost to get current on your mortgage? If you don’t know, but you assume your mortgage company will send you an accurate bill, the lead story in today’s New York Times might make you think again.
Mona Lewendowski started us on this one, but I hope she’ll indulge me as I raise another point about the implications of the Porter study.
A new study by University of Iowa law professor Katie Porter documents what mortgage servicers claim they are owed when a homeowner files for Chapter 13 — and it isn’t pretty. In addition to interest, late fees, and interest on the late fees, among the charges were $145 in “demand fees,” $137 for overnight delivery, $50 for fax, and $60 to tell the homeownerowner how much is owed. The median difference between what the borrowers thought they owed and what the mortgage servicer claimed was $1,366 and the average was $3,533.
Bankruptcy laws require that such extra charges be “reasonable,” but these mortgage servicers have bellied up to the bankruptcy bar to demand their money with little concern for whether these fees pass the sniff test. This matters a lot to families struggling to hang on to their homes because these fees have to be paid usually in the first year or so — in addition to the regular mortgage payment. If a family can’t make it, they lose the house.
This study documents a terrible problem for families in bankruptcy, but what does it say about mortgage servicing generally? Stop to consider that a family in bankruptcy nearly always has a lawyer. All mortgage claims are made part of a public record. They are supposed to be reviewed by a trustee, and other creditors who think the mortgage lender is getting too much can object. They are also subject to review by a judge. Most importantly, the law is completely unambiguous on what information the mortgage lender is required to file — the note, evidence of the mortgage and an itemization of all charges.
Porter found that even with all these factors pushing toward accuracy, most lenders did not file even the minimum documentation that is absolutely required by law. The charges she could identify were pretty shocking, but who knows what charges were hidden when the mortgage company failed to disclose.
This brings us around to why this study matters to millions of homeowners around the country. If the mortgage services get it wrong when there are lawyers, trustees, and judges to watch out for the debtor, is it reasonable to believe that they get it right whenever they add charges or recalculate the outstanding balance the rest of the time?
