Options after mortgage servicer fails?

Holly Hinson, a spokeswoman for Florida's Office of Financial Regulation, says the agency has received complaints from six people whose escrow refund checks have bounced. "However, the issue regarding the escrow accounts is actually due to administrative action taken by the federal regulators -- the FDIC," Hinson says. "They're the appropriate agency to talk to regarding these escrow accounts."

But an FDIC spokesman says his agency isn't responsible for resolving the escrow issues because Platinum was shut down a month after the bounced checks were mailed.

Meanwhile, two former TBW customers tell Bankrate that when they finally got through to TBW customer representatives, they were told to expect to receive nonrubber escrow refund checks "in a couple of weeks" or "in a few weeks."

Clearer for current customers

Things are clearer for people who still have mortgages from TBW. Those borrowers have new servicers taking care of their loans. Most of these borrowers can be divided into three groups:
  • Borrowers who got government-insured loans from TBW -- in other words, loans backed by the FHA; the Department of Veterans Affairs, or VA; or Rural Housing Service -- will now have their loans serviced by a unit of Bank of America.
  • Most other TBW borrowers have mortgages backed by Freddie Mac. Those loans will be serviced by Cenlar, unless the borrower was delinquent.
  • TBW borrowers who had been delinquent on their Freddie-backed mortgages will have their loans serviced by either Saxon Mortgage Services or Ocwen Financial Corp.

There's a fourth group of borrowers -- 34,922 homeowners with Alt-A loans. The Florida regulator requires TBW to find servicers for those loans and awaits information about whether progress is being made.

Borrowers in the first three groups got "welcome" letters from their new servicers in late August and early September. There was a glitch: Some people got welcome letters from Cenlar and from another servicer, called Roundpoint. Those borrowers will be serviced by Cenlar. A Freddie Mac spokesman says explanatory letters were sent to make it clear that payments should be sent to Cenlar.

No auto payments made?

Several Bankrate readers complain that they pay their mortgages via automatic debit from their checking accounts -- and that their August payments were never debited. Officials advise the borrowers to do nothing. Don't stop payment, don't mail a paper check, and don't cancel the monthly debit transaction. Make sure there is enough money in the account to cover the payment when it eventually is debited.

Freddie Mac's frequently asked questions Web page says:

"During the transition of the servicing of your loan from TBW to a Freddie Mac servicer, the automatic ACH debit for the period August 2009 was not drafted from your account. However, please be aware that the mortgage payment for the period August 2009 will be drafted from your account in due course once the servicing transition is complete. Going forward, beginning September 2009, your mortgage payments will be automatically drafted from your account each month on the day you previously selected."

Cenlar's frequently asked questions gives similar advice.

All the servicers, plus Freddie Mac and HUD, reassure borrowers that they won't be assessed late fees, and won't be reported to credit bureaus, if they tried to pay on time. That goes for people whose automatic debits weren't debited in time, or borrowers who mailed checks to the wrong servicer.

What happens to escrow?

Current borrowers might be alarmed when they read about bounced escrow refund checks sent to former TBW customers. The new servicers say they will pay borrowers' insurance and taxes.

Rick Simon, spokesman for Bank of America, says the servicer will advance escrow funds. And if an insurance or tax bill gets paid late because of the transition, "borrowers will not be held responsible for any penalties incurred."

Freddie Mac says it has instructed its servicers -- Cenlar, Ocwen and Saxon -- "to make all payments requested in relationship to escrow accounts."

The servicers might have to search under their couch cushions to find money to fund their new customers' escrow accounts, because it's not clear that they'll get that money anytime soon from TBW.

The Florida Office of Financial Regulation says, in a cease-and-desist order filed Aug. 21, that TBW took the money from borrowers' escrow accounts and deposited it into TBW's operating account -- the same account it was paying its employees with.

Such a commingling of escrow and operating funds "represents a serious risk to Florida consumers," the regulator says. It possibly is more than that. "If I did something like that, I'd be in jail," a mortgage broker says. Mortgage originators, real estate agents and title agents know that it's a serious breach to commingle their own business accounts with customers' escrow money.

Did TBW pay its employees with escrow funds belonging to Troy Kerwin and other current and former customers? TBW's office phones are answered by short recordings and executives were unavailable for comment.

Hinson, speaking for the Florida regulator, says it's too early to talk about criminal charges. "Right now, we're looking to see what violations there are," she says. "And we can't make a determination on what the violations are, and when they become criminal, until we have completed an examination."


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