Poor servicing leading to borrower 'death spiral'

by Kelli Rogers31 May 2013
Grimsley is currently serving a client that signed a loan modification with Saxon Mortgage Services. Three days after she signed, she began getting letters from Ocwen Loan Servicing saying she was in default, Grimsley said, but when she contacted Saxon to inquire, they told her they had no record of her loan ever existing.
Eighteen months post-modification, Grimsley’s client continues to put her house payment in an escrow account every month. Despite multiple discovery requests under RESPA, Ocwen has not responded and is insteadforeclosing on her home. 
“My biggest problem with the mortgage industry is they made deals so skinny that they couldn’t afford to service the loan,” Grimsley said. “Unless you are the perfect customer, if you ever have a problem with your mortgage, it’s a death spiral and you won’t find somebody who can fix it.”
Sharga said he is seeing a couple trends that could be problems. One is that it is getting more expensive to service loans, partly because of wave of defaults and burdens from regulatory demands. The other trend is that some servicers have started to push customer service offshore. There are multiple schools of thought on that, Sharga said, one being that the last thing a distressed borrower needs is somebody who is 5,000 miles away.
But historically, less than 1% of loans go into foreclosure, and the system operates well at a 99% success rate, Sharga said. Nobody was set up to handle the speed with which the wave of foreclosures hit or the size of the wave, but as the market heals, it’s expected that a lot of these problems will work themselves out.
In the meantime, both Muck and Grimsley advocate for more emphasis on serving the homeowner and saving their home.

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