How Did Mortgage Servicer Practices Contribute to Foreclosure Rates?

White binder with title Loan ServicingServicers played a significant role in the foreclosure crisis that occurred during the subprime mortgage meltdown in 2008.

A mortgage servicer is a company that collects mortgage payments from borrowers and manages the day-to-day operations of the mortgage, including handling escrow accounts, maintaining payment records, and managing the foreclosure process when a borrower defaults on their mortgage.

During the foreclosure crisis, some mortgage servicers engaged in unethical or illegal practices that exacerbated the crisis. Here are a few examples:

1. Robo-signing. Some servicers used a process called “robo-signing” to quickly process foreclosure paperwork without verifying its accuracy or reviewing the underlying mortgage documentation. This led to a wave of faulty and fraudulent foreclosure filings that affected millions of homeowners.

2. Dual-tracking. Some servicers continued to pursue foreclosure even as they worked with borrowers on loan modifications or other alternatives to foreclosure, a practice known as “dual-tracking.”

3. Lack of transparency: Some servicers failed to provide borrowers with clear information about their options for avoiding foreclosure, including loan modification programs and other alternatives.

4. Inadequate staffing: Some servicers were overwhelmed by the volume of delinquent loans they were managing and did not have sufficient staffing or resources to effectively manage the foreclosure process.

5. Improper fees and charges: Some mortgage servicers charged borrowers improper fees, such as late fees, inspection fees, or property preservation fees. These fees were often added to the borrower’s mortgage balance and increased the amount of the borrower’s monthly payment. If the borrower could not afford the higher payment, they were at greater risk of default and foreclosure.

6. Failure to communicate: Some mortgage servicers failed to communicate effectively with borrowers, which made it difficult for borrowers to understand their options for avoiding foreclosure. This lack of communication could also lead to confusion about the status of the loan or the foreclosure process.

7. Loss mitigation delays: Some mortgage servicers were slow to process loan modification applications or other loss mitigation requests, which left borrowers in limbo and increased the risk of foreclosure.

These and other practices by mortgage servicers contributed to the foreclosure crisis and the overall instability of the mortgage-backed securities market.

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