Options after mortgage servicer fails?

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Bounced refund checks. Contradictory information about where to send mortgage payments. House payments that are supposed to be automatically debited but aren’t. These are some of the issues faced by hundreds of thousands of former customers of Taylor, Bean & Whitaker.

If you boil down all the advice that regulators and mortgage companies give to former customers of Taylor, Bean & Whitaker, it is this: Be patient, and trust that everything will turn out all right. But the abrupt closure of TBW in early August and the chaotic aftermath do not inspire much confidence in regulators. And borrowers can be forgiven for wondering if they can trust any mortgage servicer.

TBW created two sets of victims: its former customers and its current customers.

The former customers were people who had mortgages with Taylor, Bean & Whitaker and who paid off those home loans in July or early August, either by refinancing or by selling their homes. TBW owed these former borrowers the money that had been set aside in escrow to pay for insurance and taxes, but had not yet been paid to insurance companies or taxing authorities. In early August, these former TBW customers got escrow refund checks from TBW. The refund checks bounced.

Current TBW customers had different issues. Those who make their mortgage payments by automatic debit say that their August payments have not been collected, six weeks after they were due. Other customers got letters telling them to make future mortgage payments to a company called Roundpoint, and soon afterward they got letters telling them to make their payments to a company called Cenlar. They didn’t know whom to pay. They fear that they will be assessed late fees and get black marks on their credit reports even though they tried to pay on time.

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How TBW failed

All of this came about because Ocala, Fla.,-based TBW was cut off abruptly by federal authorities Aug. 4. TBW was one of the three biggest originators of mortgages insured by the Federal Housing Administration, or FHA. On Aug. 4, the FHA discovered that TBW’s auditor had quit “after discovering certain irregular transactions,” and that a TBW official had lied about the auditor’s resignation. The FHA and Ginnie Mae, the company that securitizes government-insured loans, suspended TBW immediately. The suspension most likely was a death blow to the lender.

The FHA’s action occurred one day after agents of the FBI and of the Special Inspector General of the Troubled Asset Relief Program raided TBW’s headquarters. The same day, the feds also raided the Orlando, Fla., office of Alabama-headquartered Colonial BancGroup, which was TBW’s main creditor. At around the same time, TBW’s bank accounts at Colonial were frozen, according to TBW’s state overseer, the Florida Office of Financial Regulation.

The freezing of TBW’s bank accounts at Colonial, plus the FHA’s suspension, caused a cascade of problems that continue to haunt consumers a month and a half later. Consumers complain that they get the runaround from financial institutions and regulators.

“If there were somebody who could just lay out the plan to me and say that we’re working through the process, and this is what the process is, and within a certain time period something will be done, I would be fine with that,” says Troy Kerwin, a former TBW borrower in South Bend, Ind. “But the fact that no one’s taking ownership is the part that gets to me.”

Kerwin had a TBW mortgage and refinanced with a local bank in July. A few weeks later, he got an escrow refund check for the proper amount — $3,307 — from TBW. The check, dated Aug. 4, was drawn on an account at Platinum Community Bank, which Kerwin later found out was owned by TBW. He deposited the check, and found out Aug. 24 that it had been returned for nonsufficient funds.

On Sept. 4, the Office of Thrift Supervision closed Platinum Community Bank, and the FDIC took over to liquidate it.

Kerwin has filed complaints with the Florida attorney general, the Florida Office of Financial Regulation, the federal Department of Housing and Urban Development, the FDIC, the Federal Trade Commission, Bank of America, Cenlar, Platinum Community Bank in Illinois, and the state banking authority in Alabama, among others. He’s still out $3,307.

State and federal officials are closed-mouth about the links among Colonial, Platinum and TBW. But it seems plausible that the escrow refund checks came from a Platinum account that was supposed to receive a deposit from Colonial — but the deposit was never made because TBW’s accounts at Colonial were frozen after the FBI raid.

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.”