Lenders Charge Homeowners Questionable Servicing Fees to Add to Bankruptcy Burden
Loan servicers tack on all kinds of bogus fees and charges to consumers going through Chapter 13 bankruptcy and whose homes are being foreclosed upon, according to an article in today’s New York Times. Bankruptcy specialists say lenders and loan servicers often do not comply with even the most basic legal requirements, like correctly computing the amount a borrower owes on a foreclosed loan or providing proof of holding the mortgage note in question.
The article suggests that when housing sales are down and the loan originating side of the lender is originating fewer mortgages, the loan servicing side makes up for the shortfall. That is because loan servicing can be extremely lucrative. Servicers, which collect payments from borrowers and pass them on to investors who own the loans, generally receive a percentage of loan income and typically generate profit margins of about 20 percent. Servicers typically keep charges such as late fees assessed on delinquent or defaulted loans, so defaults can give servicers an opportunity for additional profit.
Bankruptcy lawyers say that many of these servicer charges are blatantly illegal. For example, some lender charge hundreds of dollars in fax fees, overnight delivery fees and loan payoff fees that are never approved by the bankruptcy court.
Another problem is that in nearly three-quarters of bankruptcies, the lender says the borrower owes more than the borrower calculates, often due to excessive and unnecessary fees. In one especially egregious case, Wells Fargo charged the borrower for 16 unnecessary inspections of the borrowers’ property in the 29 months the bankruptcy case was pending.