A growing number of homeowners trying to avert foreclosure are confronting problems on a new front as the mortgage industry undergoes a seismic shift.
Shoddy paperwork, erroneous fees and wrongful evictions — the same abuses that dogged the nation’s largest banks and led to a $26 billion settlement with federal authorities in 2012 — are now cropping up among the specialty firms that collect mortgage payments, according to dozens of foreclosure lawsuits and interviews with borrowers, federal and state regulators and housing lawyers.
These companies are known as servicers, but they do far more than transfer payments from borrowers to lenders. They have great power in deciding whether homeowners can win a mortgage modification or must hand over their home in a foreclosure.
And they have been buying up servicing rights voraciously. As a result, some homeowners are mired in delays.
Servicing companies such as Nationstar and Ocwen Financial now have 17 percent of the mortgage servicing market, up from 3 percent in 2010, according to Inside Mortgage Finance, an industry publication.
At first, some federal housing regulators cheered the shift, thinking the specialized companies could more nimbly help troubled homeowners. But as the buying bonanza steps up, some federal and state regulators are worried that the rapid growth could create setbacks that stall modifications for millions of Americans.
Top officials with the Consumer Financial Protection Bureau are scrutinizing the sales to ensure that homeowners don’t get lost in the shuffle.
The servicing companies defend their records. Ocwen pointed to its investment in customer service. Nationstar emphasized that it helped 108,000 homeowners with some form of modification or other repayment plan in 2013.
But some borrowers say that dealing with the specialty servicers can be vexing.
A Montana couple, Guy and Michelle Herman, thought they had finally won an agreement with their lender to reduce their mortgage bill and save their home after more than three years of fighting foreclosure.
A few months later, however, their mortgage modification appeared to have vanished. Their lender, Bank of America, had sold the right to collect their monthly mortgage payments to Nationstar in July.
The Hermans said that despite almost daily calls to Nationstar, they still could not get an explanation of how their permanent loan modification, which reduced the balance on their mortgage by nearly $80,000, could disappear.
“I don’t even know how to get a human on the line,” Guy Herman said.
Nationstar said that the couple never had a permanent loan modification and added that it had since offered the Hermans a new modification.