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Mortgage Servicers Face Lawsuits for Illegal Collection Practices and Loan Modification Delays

August 10, 2009

An analysis shows that mortgage loan servicers face multiple lawsuits alleging predatory lending and collection practices, the Associated Press reported Aug. 5. The AP analysis focused on the 38 servicers participating in Making Home Affordable, the federal plan giving servicers financial incentives to approve loan modifications. Most the servicers had been sued for charging illegal fees; forcing homeowners to buy unnecessary insurance; illegal collection practices; misleading customers about the federal program; and foreclosing on homeowners with pending loan modification applications. Some servicers have promised in legal settlements to stop unfair practices, then were sued again multiple times for the same practices.

Loan servicers are go-betweens who process mortgage payments submitted by homeowners on behalf of banks or investors (in securitized mortgages). Before the housing boom, their profits came mostly from a percentage of the loans they serviced. But during the boom, servicers discovered that they could make more money servicing high-risk subprime and exotic loans, because these riskier borrowers generated more late fees, foreclosure fees and negotiation fees. Those same fees are the reason that foreclosure is now more profitable than loan modification for servicers, which critics say is one reason why loan modifications have been so hard for homeowners to obtain.

That was the reason for the federal government to offer financial incentives to servicers under Making Home Affordable. However, the AP reported, some of those servicers are taking federal money while continuing unfair practices that have resulted in multiple lawsuits. Most recently, servicers have been sued for foreclosing despite assuring homeowners that a loan modification was pending, or for misleading borrowers about eligibility for the program. But for years, many servicers have faced lawsuits alleging they charged homeowners unnecessary and illegal fees, including fees for unnecessary services. They have also faced lawsuits under the Fair Debt Collection Practices Act and other laws that protect consumers from illegal and harassing debt collectors.

As Norwalk predatory lending lawyers, we have known for quite a while that loan servicers are not on our clients' side. The loan servicing industry is not tightly regulated, which means the companies have no watchdog making sure they avoid unfair and illegal practices. That means borrowers hurt by these practices have no one to turn to for help but an Rialto predatory lending attorney like us. By that time, homeowners may already have gone into foreclosure or paid thousands of dollars unnecessarily.

At Howard Law LLP, we help people victimized in this way fight back. Our Ontario predatory lending lawyers help borrowers who have been misled by their loan servicers, loan originators or other people along the mortgage lending chain. We have successfully sued on behalf of people who were outright lied to by lenders; charged fees they never agreed to; subjected to illegal debt collection practices, including harassment and threats; and given contracts in English after loan negotiations in other languages. In a predatory lending lawsuit, victims can claim reimbursement for all of the money they paid on the illegal loan, damages for outright law-breaking or both.

If you believe you were misled or outright lied to by your loan servicer, mortgage lender or another financial professional that broke the law, Howard Law can help. To learn more at a free, confidential consultation, please contact us online or call toll-free at 1-800-872-5925.