§1. What’s going on here?

This is a summary of discussion on the “For All Borrowers: Getting Errors Fixed” post from August 10 to October 3, 2012. (On that date, the post was closed to further discussion.) It was written by the Regulation Room team. This version is a DRAFT. Please help make sure that nothing is missing, wrong, or unclear. You can propose changes to this version until October 8.

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§2. Need for proposal; other “covered errors

Two commenters talked about experiences that would fall within the proposed list of covered errors; a third recounted problems that led him/her to suggest an additional covered error.

One commenter (consumer who got, or refinanced, a mortgage in the past 10 years) had problems with proper payment crediting after a servicing transfer.

“I recently [refinanced] a mortgage through a small firm in Charlotte, NC. They informed me that my mortgage would be sold. During the waiting period, I had to make payments to them and the payments were recorded correctly without any problem. Approximately 30 days ago, I received a letter from Citi that they bought my mortgage. The balance stated was wrong as I had made extra principle payments. I then received a statement from them and the history of the account was totally blank other than one payment. I have called Citi and talked with Supervisors in their Tuscon office. I was informed that it was my problem and I should have not made the payments to the Charlotte Company. It is my understanding from the Citi letter that any payment made before 9/1/12, the payment was to go to the Charlotte Company. Looking at my mortgage balance on the Citi website, Citi is showing a mortgage balance of close to $10,000 more than what is owed. I have even faxed them the history from the Charlotte Company for them to check and review the problem. Nothing has been done. No phone calls, no email, no acknowledgement by Citi of the reported problem. In today’s world where banks can post transactions daily, provide ACH transfers, allow high frequency trading, why is it so hard for someone at Citi to pick up the phone and resolve this issue. The system is broken….”

The second (also a consumer who got or refinanced a mortgage in the past 10 years) recounted an escrow problem: “Bank of America let my homeowners’ insurance lapse — despite collecting the money, and my forwarding 3 notices that the insurance would be, and then was being cancelled for non-payment. After it was cancelled, B of A said that I would have to pay to reinstate, and they would eventually reimburse me.” This commenter argues that there should be a penalty imposed for this error. (S/he also argues that lenders should be prohibited from requiring an escrow cushion, a practice that amounts in his/her view to “an interest free loan to the servicer for the life of the loan.”)

The third commenter (consumer who had a personal or family experience with foreclosure) detailed a dispute with a servicer over calculations in a complicated adjustable rate mortgage formula. S/he reported that the “customer service representatives are quite clearly trained to argue with the consumer” and “are not forthcoming with the fact that Green Tree will only act on disputes when they are submitted in writing, to a fax number that is not published on its website or its mortgage statements.” S/he concluded that their practice was “to deflect and obfuscate any attempt by their customers to obtain response to a concern, and to act by the letter of the law and not its spirit.” Therefore, this commenter supported the proposed rules. In addition, s/he “would be happy to see another error added to better address interest rate disputes.” “My experience is that a mortgage servicer will seek to interpret an ARM’s language to its greatest benefit. One way this is done, in my experience, is to incorrectly calculate an interest rate at a change date.”

§3. “Reasonable investigation”?

One commenter (self-identified as a “credit attorney”) expressed concern about lack of a definition for “reasonable investigation”: “Consumers are already challenged in their efforts to get the credit reporting agencies to resolve errors on their credit report. One of the main reasons for this is the failure of the Fair Credit Reporting Act to define ‘reasonable investigation.’ I would hate to see the same problem repeated in the rule making for mortgage servicers. I believe it would [be] beneficial for the new rules to provide a minimum definition of ‘reasonable investigation’ so there is no room for ambiguity or conflicting expectations.”

§4. Different rule for small servicers?

One commenter (self-identified as having worked for the mortgage servicing industry in the past and for a company whose customers come from across the country and/or from other countries) opposed different rules for servicers based on size: “It is not a borrower’s responsibility to judge the size of the company servicing them.” S/he was also concerned that a small servicer exception “will be used as a loophole for the larger banks to create subsidiaries and exploit these, much like they do with taxes. If a company in any industry can’t handle the costs of that industry, then they have no business being in that industry. If there ends up not being enough servicers to service the loans, then that’s something the investors need to look at. From my perspective, you’re trying to fix the effects rather than the cause.

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