Predatory mortgage servicing is abusive, unfair, deceptive, or fraudulent mortgage servicing practices of some

mortgage servicers A mortgage servicer is a company to which some borrowers pay their mortgage loan payments and which performs other services in connection with mortgages and mortgage-backed securities. The mortgage servicer may be the entity that originated the mor ...

during the mortgage servicing process. There is no legal definition in the United States for predatory mortgage servicing. However, the term is widely used and accepted by state and federal regulatory agencies such as the

Federal Deposit Insurance Corporation The Federal Deposit Insurance Corporation (FDIC) is one of two agencies that supply deposit insurance to depositors in American depository institutions, the other being the National Credit Union Administration, which regulates and insures cred ...

Consumer Financial Protection Bureau The Consumer Financial Protection Bureau (CFPB) is an agency of the United States government responsible for consumer protection in the financial sector. CFPB's jurisdiction includes banks, credit unions, securities firms, payday lenders, mortg ...

Office of the Comptroller of the Currency The Office of the Comptroller of the Currency (OCC) is an independent bureau within the United States Department of the Treasury that was established by the National Currency Act of 1863 and serves to charter, regulate, and supervise all nation ...

Federal Trade Commission The Federal Trade Commission (FTC) is an independent agency of the United States government whose principal mission is the enforcement of civil (non-criminal) antitrust law and the promotion of consumer protection. The FTC shares jurisdiction ov ...

and Government Sponsored Enterprises (GSEs) such as

Fannie Mae The Federal National Mortgage Association (FNMA), commonly known as Fannie Mae, is a United States government-sponsored enterprise (GSE) and, since 1968, a publicly traded company. Founded in 1938 during the Great Depression as part of the N ...

and

Freddie Mac The Federal Home Loan Mortgage Corporation (FHLMC), commonly known as Freddie Mac, is a publicly traded, government-sponsored enterprise (GSE), headquartered in Tysons Corner, Virginia.subprime In finance, subprime lending (also referred to as near-prime, subpar, non-prime, and second-chance lending) is the provision of loans to people in the United States who may have difficulty maintaining the repayment schedule. Historically, subpri ...

Alt-A An Alt-A mortgage, short for Alternative A-paper, is a type of U.S. mortgage that, for various reasons, is considered riskier than A-paper, or "prime", and less risky than "subprime," the riskiest category. For these reasons, as well as in some ca ...

, scratch and dent, and toxic mortgages that are being serviced by special or default servicers or servicers and lenders that are financially in trouble. There are many motives for predatory servicing practices and a report titled Misbehavior and Mistake in Bankruptcy Mortgage Claim by

Katie Porter Katherine Moore Porter (born January 3, 1974) is an American politician, law professor, and lawyer who is the U.S. representative from California's 45th congressional district since 2019. She is the first Democrat to be elected to represent the ...

, professor of law at the

University of Iowa The University of Iowa (UI, U of I, UIowa, or simply Iowa) is a public university, public research university in Iowa City, Iowa, United States. Founded in 1847, it is the oldest and largest university in the state. The University of Iowa is org ...

(now member of the

United States House of Representatives The United States House of Representatives, often referred to as the House of Representatives, the U.S. House, or simply the House, is the Lower house, lower chamber of the United States Congress, with the United States Senate, Senate being ...

) details the effects and damages caused by servicing abuses. In mortgage securitization transactions, the mortgage servicer forwards the borrower's payment of principal and interest to the certificate holders (investors) of the special securitized trust that owns and holds the promissory notes secured by the mortgages and deeds of trust. The

mortgage servicer A mortgage servicer is a company to which some borrowers pay their mortgage loan payments and which performs other services in connection with mortgages and mortgage-backed securities. The mortgage servicer may be the entity that originated the mor ...

, however, is allowed to retain late fees, BPO fees, inspection fees, and other fees charged or assessed to a borrower's account. In addition to the fee income, the servicer is allowed to retain the net liquidation proceeds of any foreclosure sale (net after foreclosure expenses and principal balance to investors). This provides an incentive to unscrupulous servicers who aggressively interpret mortgage documents to add additional fees to a borrower's mortgage account. Many times, the additional fees added on create an event of default allowing the

to foreclose on the property. This practice is commonly referred to as manufacturing a default or manufactured default.

Legality

While there are no specific laws against predatory mortgage servicing abuses, there are local, state, and federal laws against many of the specific practices commonly identified as predatory mortgage servicing abuses, and various state and federal agencies use the term as a catch-all term for many specific illegal activities in the mortgage servicing industry. Predatory mortgage servicing is not to be confused with

predatory lending Predatory lending refers to unethical practices conducted by lending organizations during a loan origination process that are unfair, deceptive, or fraudulent. While there are no internationally agreed legal definitions for predatory lending, a 2006 ...

which is used to describe the unfair, deceptive, or fraudulent practices of mortgage brokers and lenders during the mortgage loan origination process.http://www.businessweek.com/magazine/content/06_52/b4015147.htm?chan=top+news_top+news+index_businessweek+exclusives

References

{{reflist Mortgage industry of the United States Consumer fraud Mortgage-backed security United States housing bubble Abuse Deception Ethically disputed business practices Usury

Legality

See also

References