Mortgage companies in California continue to routinely violate foreclosure laws and go back on promises they made in legal settlements, according to housing counselors and advocates, despite new federal rules designed to stamp out lingering problems in the mortgage servicing industry.
Homeowner advocates “continue to report frustration with poor servicer responsiveness” in response to a survey by the California Reinvestment Coalition (CRC). Mortgage servicers fail to provide a consistent contact person for caseworkers and homeowners, lose documents, ignore the timelines they are supposed to follow for responding to inquiries, and fail to process paperwork properly when a homeowner’s loan gets transferred from one company to another.
The survey is meant to capture the impact of new rules for mortgage servicers from the Consumer Financial Protection Bureau (CFPB), but most respondents say it’s too soon to tell how the new requirements are working. The CRC report says its respondents have seen a “moderate improvement in servicer practices,” but the counselors quoted in the report emphasize that new rules can only do so much without authorities following through with strict oversight of how the industry is responding. “Servicers have not changed their practices and will not unless there is auditing and enforcement,” one respondent to the CRC survey wrote.
The report also features nearly a dozen separate homeowner horror stories. Gemma and Cornelio Jaochico of Castro Valley followed every instruction they got from Wells Fargo in hopes of winning a loan modification after Gemma lost her job and their mortgage became untenable. The bank told the Jaochicos it would postpone the sale of their home while reviewing the modification request, but then sold the house out from under them and filed an eviction notice. The bank refused to revisit the modification application and even rejected the couple’s attempt to repay the full overdue amount after scraping funds together from family members. The Jaochicos ultimately lost their home in February of this year. Other foreclosure victims like Josefina Duenas held onto their homes, but only after years of stonewalling and paperwork deceptions drew homeowner advocates to file official complaints against the servicers.
The stories and survey findings from the CRC are in line with what other reports have found about the mortgage servicing business model. The official monitor for the National Mortgage Settlement that was supposed to clean up the industry found that banks continue to violate the terms of that 2012 agreement. A CFPB review of industry practices found that servicers frequently seek to intimidate borrowers who need modifications and routinely mishandle payments and paperwork that homeowners have made properly.
Evidence that mortgage servicers continue to flout the law in ways that cost people their homes shouldn’t be all that surprising. The industry’s paperwork problems have been building up for years, with loans frequently changing hands without all the proper documentation. Companies got so accustomed to doctoring the records in order to make deals appear legitimate that the largest mortgage servicer in the country even had a formal instruction manual to teach employees how to gin up the document they needed to prove a sale or foreclosure was legal. Trillions of dollars worth of mortgages don’t have any legally valid owner thanks to the industry’s paperwork problems. But ineffectual enforcement efforts from the government have allowed companies to continue violating homeowners’ rights with near impunity.