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.”

Cipollone, who advised Fairbanks on that action plan, says the loan servicer embraced the changes enthusiastically. “But I haven’t yet seen it trickle down to the level where the homeowner can call up and get (a problem) settled with a few phone calls,” she says, adding that she expects that situation to improve.

The settlement with Fairbanks Capital is a hopeful sign that abusive servicing practices will get more scrutiny. But government agencies don’t employ enough investigators to police the mortgage industry adequately even when they want to. The Office of Thrift Supervision, which theoretically polices servicers such as Ocwen Financial Corp., conducts little meaningful oversight, critics complain.


How, where to complain
Complaining to the government is not the first step to take when you run afoul of an abusive mortgage servicer. The first thing you should do is call the customer service department and write a complaint letter. HUD has a sample complaint letter on its Web site; make sure the letter emphasizes that it is a “qualified written request under Section 6 of the Real Estate Settlement Procedures Act.”

Do not send the letter in the same envelope as a payment.

The address and phone number for the company’s customer-service department should be printed in the coupon book or the monthly bill. Explain the problem succinctly and propose a solution. For example, if a mortgage servicer bills you for homeowners insurance, but you already have a policy, provide proof that you have a policy, and explain that you want the servicer to cancel the redundant policy, stop billing you, refund any money you have paid, and cancel all late charges connected to the policy.

If the servicer does not resolve the problem within 60 days, let loose a barrage of government agencies. If you’re lucky, one or more might take action. Start with your state’s regulator — the banking office, consumer protection office, attorney general or another agency.


Help on the Web
The Mortgage Bankers Association offers a Web page that allows you to type in your ZIP code and find out which state and federal offices to contact. Type your ZIP code in the window at the bottom of this page; you don’t have to answer the questionnaire.

The Community Law Center in Baltimore devotes this Web page to the issue of abusive loan servicing.

Moving to the federal level, file a complaint with the FTC by calling (877) 382-4357 and HUD by calling (202) 708-4560.

The National Community Reinvestment Coalition, which helped Fairbanks draw up its new operating guidelines, accepts complaints about rogue servicers and sometimes acts as “a private attorney general,” in the words of David Berenbaum, NCRC’s senior vice president for policy. The nonprofit has a complaint line at (800) 475-6272.

Finally, you can file a lawsuit. The law firm of Lieff Cabraser Heimann & Bernstein is investigating complaints about Ocwen Financial, and other loan servicers could become targets of class-action lawsuits.