This is an idea I believe has found its time. One of the biggest problems I believe we have with the whole mortgage industry and the foreclosure crisis has been the inconsistency in how different lenders handle their accounts, and how defaults are addressed. Time to consider enacting a bill of rights for home owners setting national standards to regulate the relationship between lender and home owner.
Currently there are little safeguards in place to protect a home owner from excessively punitive fees that bear little relation to the actual costs involved in managing a loan and assessing late payments. There are numerous reports of home owners being charged upward of $2000 in "letter fees" per foreclosure notice, just to cover the cost of a lender having to issue a standard form letter from their billing system.
The Boston Globe wrote a piece on this back in 2007, Hidden Legal Fees Push Some Into Foreclosure.
Threatened with foreclosure, Sharon Pettway discovered that her overdue mortgage bill was rising so quickly that each time she cobbled together money to pay it, the debt had grown larger.
more stories like thisThe reason: Fast-mounting attorney fees charged by the law firm hired by her mortgage company to handle the foreclosure. At one point, the charges by the Harmon Law Offices in Newton increased 80 percent in three weeks, leaping from $2,237 to $4,020. But when Pettway called the firm to pay her bill, she said, she was told it would take several days to tally the final balance, a delay that resulted in more charges.
"If they had taken what I owed right then and there I would have been able to pay it off, but they kept adding on fees," said Pettway, 43, who bought her single-family home near Codman Square in 1993. "It wasn't right. Here I was trying to pay my debt, and they're adding on fees I can't afford."
With foreclosures surging in Massachusetts, runaway mortgage debt is a growing problem for thousands who have fallen behind on their house payments. In November alone, lenders foreclosed on 2,100 properties in the state, up nearly 300 percent from the same month the previous year, marking the second-biggest increase in the country. And while many cash-strapped homeowners fighting foreclosure struggle to make up missed payments, they are unaware that thousands of dollars in legal fees can accumulate in the interim.
and
Mortgage companies and foreclosure law firms say the fees are legitimate and often required by law, and say they sometimes bill for estimated future expenses to compensate for costs that continue climbing until payoffs are received.
So we have someone that maybe lost their job due to offshoring, or the credit market contraction closing down their employer, or in massive debt due to lack of health care coverage - and they get foreclosed on as they can't keep up on their bills. Then, the lenders that are partly responsible for getting them in this mess in the first place turn around and charge thousands of dollars above the amount due to estimate future possible, expenses ? How in the hell can we accept this as reasonable ?
The New York Times has covered this in several articles too, here is one they wrote way back in 2007 - Dubious Fees Hit Home Owners in Foreclosure.
Because there is little oversight of foreclosure practices and the fees that are charged, bankruptcy specialists fear that some consumers may be losing their homes unnecessarily or that mortgage servicers, who collect loan payments, are profiting from foreclosures.
Bankruptcy specialists say lenders and loan servicers often do not comply with even the most basic legal requirements, like correctly computing the amount a borrower owes on a foreclosed loan or providing proof of holding the mortgage note in question.
"Regulators need to look beyond their current, myopic focus on loan origination and consider how servicers’ calculation and collection practices leave families vulnerable to foreclosure," said Katherine M. Porter, associate professor of law at the University of Iowa
In one example, Ms. Porter found that a lender had filed a claim stating that the borrower owed more than $1 million. But after the loan history was scrutinized, the balance turned out to be $60,000. And a judge in Louisiana is considering an award for sanctions against Wells Fargo in a case in which the bank assessed improper fees and charges that added more than $24,000 to a borrower’s loan.
This is robbery of the citizenry by the Banking industry, the very industry that is taking almost a trillion dollars in public bail out cash. This is profiteering from a disaster they had a significant hand in making.
Enough is enough, its time we took a good hard look at our relationship with financial institutions and put in place protections to ensure business is conducted in an ethical and fair manner. The free market clearly cannot conduct itself ethically so regulation is required. There has been some focus on loan origination regulation in the press, but very little on legal rights of the borrower once the loan is in effect. Why ? Because loan origination controls invariably focus on the borrower as being the problem. Controlling the excesses of the financial industry when it comes to charges and levies is a different matter entirely.
Now this isn't limited of course to mortgages, anyone that has accidentally gone overdrawn on their bank account in the past few months may have been shocked by the fees being applied these days, but we've got to start somewhere and while the mortgage industry is in the spotlight, we ought to grab this opportunity.
This epidemic of financial mis-management by Wall Street and the big banks presents us with a real opportunity to put in place controls and protections that for a change don't just focus on protecting rich investors and Executives, but also protect regular folks, the consumer.
Now the rights themselves are subject to debate, and I'd like to get your input on what should be included. Ultimately through writing to our Representatives, we may, just may, be able to get something into Tarp 2.
Here are some ideas I'd like to see included :
- Interest on past due balances must be held within a set % range and should not be punitive or profit generating, its to cover lost income and thats it
- Documentation fees should be auditable and based on the true cost of generating a letter, again not punitive or profit generating
- Mortgages should be written up with arbitration rules indicating non-performance of the mortgage contract will lead to arbitration rather than immediate foreclosure. Borrowers should have access to legal aid to represent them in arbitration. Loan modification should be determined by an independent arbitrator.
- There should be a cap on legal fees, possibly something as simple as two months of mortgage payments. To offset the loss to banks from this new condition, this could be included in the initial mortgage deposit during closing.
Clearly the current framework is not working and the short sightedness of the financial industry is self-destructive.