Spoiler Alert:  As a borrower, you  are an expendable resource in home loan servicing to be exploited for fees and charges.

And those who could do something “hear no evil, see no evil, speak no evil”.

Meanwhile, you and other borrowers are the enemy in something once referred to decades ago as “Combat Loan Servicing”.

Borrowers just trying to keep their homes are subject to a campaign of systematic and deliberate deception. This fundamental deception is now often combined with the fraudulent surcharging of fees costs and other “expenses” designed to make vast additional amounts of money for lender/servicers.

When used aggressively, their techniques run homeowners slowly into foreclosure, resulting in the permanent loss of home(s).

If the hapless borrower manages to retain the home, lender/servicers make hundreds of millions of dollars of additional annual revenue at little or no cost. (They make this money by doing as little as possible and getting you to do or not do things for which they can aggressively bill you.)

In many cases, both the Racketeering Influenced Corrupt Organization Act (“RICO”) plus the federal mail and wire fraud criminal laws are  violated. Federal and state regulators have known about these practices for years. However, Lender/servicers have had a de-facto exemption from enforcement.

Sound overdramatic? Read on and decide.

Representing without Representation…

The homeowner/borrower nightmare(s) typically start with an endless cavalcade of ever-changing parties “representing” the lender/servicer.

Here’s the REALITY:

Lender/servicers frequently subcontract out the process of servicing your loans including applying for (among other things) loan modifications. By this I mean lender/servicers actually “farm these functions out” to ACTUAL SUBCONTRACTORS (FULFILLMENT COMPANIES) WHO DO NOT WORK FOR THE LENDER/SERVICER.

In the case of Ocwen, it was recently fined by the State of Washington for subcontracting out sensitive loan servicing functions to unlicensed entities in India and the Philippines.

Please note the federal government and the government of California seem to have NO problem with such practices by Ocwen or anyone else.

These subcontractors answer the phone, act, walk, and talk like they ARE the employees of the lender/servicer.

But in many cases these subcontractors are not tied into the lender’s computerized system in any way. They are sometimes in fact not even DIRECTLY employed by the lender.

They may work on the lenders’ premises or in remote locations neither owned nor operated by the lender/servicer. They have letterhead that says they ARE writing to the borrower as though they are the lender/servicer. The letterhead even has the lender/ servicer’s address and a phone number on it… AND IT LOOKS GOOD.

But it isn’t so. The result is utter chaos for the homeowner.

These subcontractors literally don’t have the authority to do anything. Often, they have to strictly follow  a pre-approved script for all their interactions with borrowers. The subcontractors will have a half dozen or so “canned form letters” they are permitted to send. NO OTHER WRITTEN COMMUNICATIONS WHATSOEVER are permissible. These subcontractors cannot change ANY language in the form letter(s) or modify them even slightly.

• Ever receive a letter from your “authorized contact” at the lender/servicer that seemed totally disjointed and disconnected from everything you had labored to achieve with him/her up to that moment?
• Ever receive a letter totally non-responsive to the written request you faxed to your point of contact?
• Ever receive a letter telling you the EXACT opposite of what you’d discussed verbally on the phone?
• Ever been told on the phone your loan mod was approved and then receive a letter saying you did not send documents required?
• Ever try to get your “contact” to fax you a confirmation in writing that your loan mod was approved (or that your foreclosure was postponed) after they assured you of this verbally on the phone?

Ever notice that you are often told your phone call(s) to a lender/servicer “…may be recorded for quality assurance” yet lender/ servicers ABSOLUTELY REFUSE to allow you to record them from your end of the phone?

In our law office, we’ve heard scores of variations on every theme listed above. We’ve spoken to hundreds of homeowners with the identical problem(s) and different lenders across California and the country.

The State of  Washington fined Ocwen $900,000 for using unlicensed, off shore entities to service Washington home loans.

Multiple federal agencies have been made well aware of these facts by tens of thousands of homeowner/borrowers. The present and past Attorney(s) General of the State of California have been told by desperate homeowners struggling to save their homes as well as by those who lost their homes.

The California AG has done nothing about this. They are not supposed to do anything about it because THIS (subcontracting out critical functions) is a technique governments have been using for years. Now it’s gone main-stream and is being used to service your mortgage.

How They Do It In 10 Steps

1. Use an endless stream of disappearing individuals “representing” the lender/servicer but really working for the subcontracting “fulfillment entity”.

If you are dealing with subcontractors “ AKA: organizational transients” with less staying power than a candle in a windstorm, no one is around long enough to pinned down to any narrative save the one the lender wants. These people don’t actually work “there” so they are not likely to be “there” very long.

You’ll get a “single point of contact” alright, it just will be a different one almost every time you call. Of course your home is the most important financial asset many of us will ever have, but no matter.

2.  Only allow borrowers to send letters/documentation by FAX. 
No email addresses are to be given out. Instruct personnel to inform borrowers that direct post office and email address are unavailable and/or cannot be given out to “non-authorized personnel.”

They insist upon the fax because there is absolutely no legal way for the borrower/homeowner to prove they sent anything to the lender/servicer AND that the lender/servicer actually received it. Lender/servicers then have plenary power to claim that they never received any document the borrower/homeowner sends.

No, the little printout you get that says the transmission was “good” doesn’t prove the lender physically received your documents.

3.  Make the borrower/homeowner keep sending the same information and/or going over the same items week after week.
Subcontractors are typically compensated for their time handling a matter NOT for getting you a loan mod or unscrambling the mess the lender/servicer made out of your escrow account. The more time they spend, they more they typically earn. Hence work expands to fill the amount of hours that can be billed to accomplish as little as possible.)
4.  Give the borrower/homeowner very specific BIZARRE instructions as to where to send payments and the specific manner for doing so.
This often means the people you are dealing with on behalf of the lender/servicer are not integrated into the lender/servicer’s actual computerized system for “boarding” loans.

In other words your money is going off into the “ether” and may or may not EVER show up in the lender/servicer’s records in the place and category it should be in.

Often as not these payments find their way to a “suspense account”. That is very bad for the borrower because these payments are virtually never put where they should have gone. PLUS they are not posted as payments hence you are “late”, then you attract late payment charges and ultimately you may end up in default.

Often the borrower/homeowner is obliged and instructed to send monthly house payments by certified check, Western Union, SPEEDPAY etc.

Almost certainly this means your loan is not in the lender/servicer’s actual computer system. This also facilitates letting the subcontracted “fulfillment” entity handle the process (and your money) off the lender’s actual books.
5.  Halt monthly statements to the borrower under one or more pretexts.
As the new servicer or subcontractor, claim to have records of only the original unmodified loan. When statements are restarted do not reflect the loan mod terms in the statement.

This typically means after some decent interval they will begin demanding a much larger amount than the modified payment borrower has been paying. You can’t figure out what the lender/servicer is doing if they don’t give you anything to look at.

This is really not good.

One of the most basic features of having a REAL loan is a monthly statement reciting what is owed, what has been paid and when lender/servicers often “interrupt” statements when a new servicer “takes over” for the previous one, especially a loan modification was previously implemented.

Many lender /servicers will stop sending notices when you are in bankruptcy even though they clearly could do so with appropriate precatory language appended to the statements. By “going dark” they can “come back at” the debtor when they emerge from bankruptcy with a demand that utterly obliterates any hope that they got current in bankruptcy.

All the while the lender/servicers will claim they “had to do so”.

This practice got so bad, Chapter 13 bankruptcies now contain a “put up or shut up” motion that can be filed at plan completion, legally obliging the lender to “speak now or forever hold their peace.”
6.  Insist the borrower send in loan modification (complete with notarized signatures) back to the lender/servicer.
6.  Require borrowers make payments indefinitely while rebuffing any and all requests by the borrower to record proof of their modified loan for the public record.

Refuse to either give the borrower a recordable copy of the borrower’s loan medication, so as to “keep all options open for disavowing a modified loan” or allow future purchasers of the loan to do so.

Subcontractors working for lender/servicers will almost never provide recordable proof of the loan’s modification, and may even go so far as to tell you that it isn’t the lender’s policy to provide even a fully countersigned copy of the loan modification.

NOTE: It is extremely common for loan modifications to specify in writing that they ARE NOT VALID unless and until countersigned by the lender. But then again how will you ever know this if they won’t give you a recordable copy? Or any copy?)

7.   Never provide a street address or even a P.O. Box where borrowers can send ANY correspondence or documents if it can be avoided.
No matter how many times the borrower asks, insist that the lender/servicer cannot receive documents ANY other way EXCEPT BY FAX. If necessary, tell borrowers it will take much longer if they attempt to use mail or P.O. Box.

This is part of the “you gotta fax it to us ” scam discussed above. A real address would allow you to do two CRITICAL THINGS:

• You could determine you’re not actually dealing with the lender/servicer (by Googling the address.) and/or
• You could legally prove that you sent and they received critical items.

Email addresses and mailing address prevent the “strategic disavowal” of communications documents and the existence of contractual and fiduciary duties that lender/servicers don’t want to be held to, while holding the borrower/homeowner to only those rights that the lender/servicers want them to have.

This has worked for years. Not one federal or state agency has ever required lenders to cease these practices across the board in dealing with their customers. It would be so simple to require but state and federal regulators never did…

I don’t count RESPA, even in its current form, as I regard it critically deficient for the most part. RESPA never did go far enough and it still doesn’t.

What is worse by the time you use RESPA, lender/servicers have typically already “legally” done the damage to you that is discussed above. RESPA basically gives you the autopsy on your own financial murder.

8.  Make sure nothing happens.
Yes I mentioned this in my previous article, but “nothing” is the worst symptom of all because. in this context, NOTHING IS SOMETHING AND IT’S BAD.

“Nothing” is the one thing that should not be happening as you deal with the subcontractor for the your lender/servicer about specific concrete issues concerning the most valuable financial asset most of us will ever have.

Something should be happening. Something should be happening on at least a weekly basis until the issue resolved. Otherwise it almost NEVER turns out well for the borrower/homeowner, and it almost always goes REALLY well financially, for the lender/servicer.

Allowing “nothing” to happen for extended periods of time is virtually always construed by banks, attorneys and judges AGAINST borrowers. “Nothing” happening is always construed to be the borrowers fault.
9.  Induce the borrower to “reapply for a modification” if the borrower insists that they already have one.
If possible attempt to “explain” that the modification was only temporary, was defective, or was not approved by the investor. Make the borrower think that the “loss” of the loan modification is or must be THEIR fault.

Subcontractors and lender/servicers use this ruse to attempt to wipe out any prior loan modification you may have, or any progress you’ve made submitting paperwork. If they can get you to reapply you find that they will later argue any rights you may have had were superseded or waived.
10.  Play dumb.

Subcontractors and lender/servicers pretend, feign, ape and otherwise act the part of incredulous bystanders who’ve “Never seen anything like it.”

• They don’t know why you think you have a loan modification when nothing shows up on “their system”.
• They never received the documents you sent then yesterday or last week.
• They don’t know why you thought your foreclosure was postponed.
• They called or wrote you multiple times even though you have voicemail and received no letters.
• They never received your letters proving you have homeowners’ insurance.

They play dumb because they can. They can because they have used the tactics in 1-9 above to script, cleanse, and control the record.

Typically, neither the prior subcontractor-lender/servicer nor the current subcontractor-lender/servicer will actually assist you though they may pretend to do so.

This is especially true if you are on the phone with them. Instead they will express confusion, shock, awe, mock sympathy or an out-and-out aggressive refusal to recognize you have a modified loan or any other rights.

REMEMBER! It’s an act.

They know exactly what it was that happened to you. You are not the first person to have these issues. Thousands of people have said the same things to the individuals working as subcontractors and the lender/servicers.

It’s one of the reasons personnel are moved around so frequently. It is a technique that has been very successful in exacting huge penalties, fees and charges and profits.

Lender/servicers work on very thin margins and this is how they make BIG MONEY. They have done this for years with impunity.

Fight Back

Whenever you deal with a subcontractor-lender/servicer do the following:

1. ALWAYS Use OVERNIGHT MAIL WITH PROOF OF RECEIPT or UPS or FedEx with tracking.

Make them give you an address.

2. CONFIRM EVERY phone conversation with the subcontractor-lender/servicer in writing via overnight mail with proof of receipt, and DEMAND these written confirmations be added to your loan file.

3. DO NOT STOP sending your payments under a modified loan agreement because of anything a subcontractor-lender/servicer says. Keep paying even if they return the funds. Take the returned funds and hold them in an account for later use in court. Judges love it when they see you tried to pay, the lender would not let you, and you put the money aside to “pay what you owe”.

4. GET LEGAL HELP before  foreclosure proceedings are filed.  In California, foreclosure starts with a Notice of Default.

5. DO NOT ALLOW THE SALE OF YOUR HOME TO GO THROUGH if they do file a notice of default. (Once the home is sold in foreclosure it may be impossible to recover and the subcontractor-lender/servicers will have a massive payday.)

Consider filing Chapter 13.

6. ASK POLITELY ,THEN FILE SUIT. The legal system has actually been interpreted and twisted to protect the activities outlined above. That’s why so many of you who read this will say:

“That happened to me…”

It’s grossly fraudulent and yes…they do it with impunity. (Or at least they have in the past.)

Since prosecutors at the federal and state level don’t wish to file deceptive business practice, RICO, and mail fraud cases against national lenders, their servicers and the subcontractors they hire, it falls to you to hire an attorney and sue them.

Judges are becoming less likely to buy the lender’s malarkey.

Just when I thought that most of the pain from the mortgage lending bubble of a decade ago was behind us, we arrive at a painful milestone.

Those 10 years-interest only loans from 2006 and 2007 are resetting.

Instead of being interest only, they now move to principal and interest.  And the balance originally borrowed for 30 years, has to be repaid in the remaining 20 years of the loan.

Ouch.

Yet, many homeowners I’ve talked to are only vaguely aware that the earth under them is about to shift.  Or have only a vague plan about what to do now that it has shifted.

How amortization works

Amortization is the mathematical formula that tells you how much you have to pay each month, at a given interest rate, in order to pay off a loan over a given number of years.

The standard home loan in the US is a 30 year loan.  The fixed monthly payment is calculated so that by the end of thirty years, you have repaid the amount borrowed and the interest that the loan accrued over those three decades.  In the early years, most of the payment goes to interest.  As the principal is reduced, interest is a smaller share of each payment.

Suppose you borrow $300,000 at 5% , amortized over 30 years.  The monthly payment is $1610. In the first month, $350 goes to pay off principal, and $1250 goes to interest.

By the last payment, the principal is fully repaid.

But let’s look at the same 30 year loan, assuming it was interest only for 10 years, and the entire loan is repaid in the remaining 20 years of the loan term.

In year 11, the payment moves to $1980 per month.  The first payment in the amortization period is $780 is principal and $1250 is interest.

Coping with mortgage reset

In the best of all possible worlds, you saw the reset coming and have the increased cash flow available to make the larger payments of principal and interest payment.  Good work.

But if the increased payment finds you still budget challenged, you’ve got a problem.

Your choices include refinancing the loan, replacing the existing loan with a new loan, with a life longer than the 20 years remaining on your current loan.

Modification of the loan with the current lender may be an option, though you usually have to show some evidence of hardship to qualify for modification.  The government-regulated loan modification programs have expired.

You can use this juncture to consider selling the home, if it’s time to relocate, downsize, or escape the work involved with home ownership.

Lastly, you can look at your options to eliminate other expenses from your budget to free up cash, or other ways to increase your income with a second job or getting a housemate.

Don’t forget that  Housing and Urban Development offers expert housing counselors, free of charge.