The job of a mortgage servicer is to collect loan payments and keep track of what’s owed on the mortgage. That shouldn’t be too hard.
But the evidence is that they don’t do that basic job very well.
Throw a loan modification into the mix, and who knows what you’ll get.
Accounting for modification
I got a glimpse of what we face when my client requested a loan payoff in connection with a sale.
The loan had been modified some five years ago, with the result that a sizable hunk of the amount due when the loan was modified was due only upon sale.
Asked for a payoff, the servicer returned a payoff that failed to include some $127,000 of non interest bearing principal.
Granted, this particular mistake cut in favor of my client. Who are we to complain?
But it is just as easy to image that the blunder works the other way: the requested payoff doesn’t take into account the changes made to the debt when the loan was modified downward. The payoff demand could just as easily have been calculated at the old, higher rates in effect before modification.
Multiply this instance by a fraction of the modified loans out there, and we need to tell Houston we have a problem.
Mortgage modifications to the rescue
Mortgage modifications were supposed to save both individual homeowners and the economy as a whole.
They promised to keep homeowners in their homes despite the housing crash of the Great Recession.
To some extent that has worked.
Or at least mortgage modifications spread the failures out over time so that the market wasn’t glutted with foreclosed properties.
But anyone who has attempted a mortgage modification knows first hand the frustration of submitting an application to the servicer.
Over and over, the servicer claims that you haven’t sent the documents, or the documents are stale or incomplete.
That inability to account for the modificiation application documents is, I’m afraid, just a sneak-peak at the next mortgage horror:
Servicers have no records about the loans they did modify.
Or, more precisely, the records they have are not to be trusted.
Rotten record keeping
The casualness with which servicers approached modifications has scared me for sometime.
- modification agreements were poorly drafted
- borrowers never got copies signed by the lender
- changes in terms not part of public record
The quality of the customer interface at the servicer was laughable, if it wasn’t frightening.
The problems are compounded when the servicing on loans changes hands.
The new servicer starts with the ending balances from the prior servicer. Few records other than an electronic data base change hands. Any mistakes made by the prior servicer are now impenetrable.
The terms, or maybe even the enforceability of the modification itself, are lost in the mists of time.
Practice self defense
Who knew that homeownership was going to be a contact sport?
But you have to assume, if you got a loan modification, it will be up to you to defend the modification when the time comes to pay it off.
Here’s the homeowner’s two step:
- Keep good records– find and preserve the loan modification agreement. Treat it as being just as important as the deed to your home.
- Request mortgage accounting each year – make an annual request for the state of your loan, and preserve the response
Your goal is to have your own records supporting the terms of the loan modification and to catch any problems in accounting early.
May all the lender’s mistakes cut in your favor, and may the Force be with you.
You’ll need all the help you can get.
Monkey at typewriter: Oliver Hammond