Saving yourself from predatory mortgage servicers

You can't choose your mortgage servicer, but you can strike back if your servicer mistreats you.

Government agencies, trial lawyers and consumer activists have begun focusing attention on what they call "predatory mortgage servicers." They landed a prize catch this month when Fairbanks Capital Corp., the largest servicer of subprime mortgages, reached a $40 million settlement with the federal government.

The homeowners who were victimized by Fairbanks Capital could do little about it. Fairbanks is not a lender. It is a loan servicer -- a company that collects house payments. A servicer distributes the money to the owners of the loans. On loans with escrow accounts, it distributes the money to insurance companies and tax districts. Borrowers have little recourse against a rogue loan servicer, because the investor who owns the loan chooses the servicer.

"Consumers have no choice about who services their loans," says Timothy Muris, chairman of the Federal Trade Commission. "They can't take their business elsewhere when mistreated."

Behaving dastardly with your deed
Thousands of homeowners whose loans were serviced by Fairbanks Capital wished they could have taken their business elsewhere. Fairbanks Capital had been accused of a number of dastardly practices. Among them:

• Charging borrowers for overpriced homeowners insurance -- even when they already had policies;
• Assessing hefty prepayment penalties to borrowers who refinanced their mortgages -- even on loans in which the fine print explicitly said that there would be no prepayment penalties;
• Giving inaccurate information to credit bureaus, harming borrowers' creditworthiness;
• Charging late penalties on payments that were received on time.

"They certainly caused monetary hardship," says Diane Cipollone of the Community Law Center in Baltimore. "Some families did, in fact, pay the fees that they were questioning, or could never receive an itemization for them. So there were families that, under threat of foreclosure, paid thousands of dollars at a time even though they weren't sure what they were paying for."

Investigating unfair Fairbanks
The Community Law Center is a nonprofit, public-interest law firm, and Cipollone's office coordinated Baltimore's predatory lending task force since 2000. Early this year, WBAL-TV in Baltimore aired a series of investigative reports about Fairbanks Capital, and the law center "offered to be a resource because we regarded this as another predatory practice."

At the urging of Maryland's senators, the FTC and the federal Department of Housing and Urban Development investigated Fairbanks Capital and they, too, concluded that the company "engaged in a laundry list of predatory loan servicing practices" among its 500,000 customers nationwide.

Under terms of the settlement, Salt Lake City-based Fairbanks will give $40 million to the FTC, which will distribute money to consumers who can demonstrate that Fairbanks Capital caused them harm.

Consumers from across the country had filed class-action lawsuits against the company in various states, and Fairbanks says it expects to settle those for $15 million. The company fired its chief executive and other executives, and it says its new leadership "has implemented an action plan to ensure measurable improvements in consumer-responsive loan servicing practices."