Servicing Basics

Servicing Basics

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The Slippery Slope

For almost everyone, buying a place to live will be their single largest debt obligation.

Over the years, the changes in our financial services industries have created enormous opportunities to qualify for and obtain home-loans—but with a serious downside: A high risk of default and foreclosure. Worse yet, sound legal protections for instances where the borrower isn’t at fault have not been well established.

Whether you’re a first-time borrower or experienced with the mortgage lending process, the path that lies ahead, particularly in the “sub-prime” market, is treacherous. In fact, there are thousands of businesses in the United States that would not even exist and hundreds of thousands of people doing something else for a living if everyone managed to navigate the sub-prime mortgage terrain without a slip.

Years of experience in dealing with mortgage servicing issues has taught us one very important lesson:

The burden of vigilance is entirely on the borrower

Sub-prime loans end up in failure for a number of reasons, but the failures can all be categorized among the following three, often in combination:

û A bad (sometimes even illegally constructed) “toxic” loan

û A borrower who can’t handle the financial load

û Aggressive, opportunistic or predatory servicing

Add a toxic loan to a borrower in financial trouble and it when it’s sold to a predatory servicer someone is going to be moving out of their home.

A sub-prime borrower has no choice in who services their mortgage, and it may change several times over the life of the loan. You, the borrower, can’t take your business elsewhere if you don’t like how you’re being treated. The actual customers of the servicers are the trustees of the loan pools who pay them (allow them to retain) small amounts of each loan payment.

Not only is there no choice in who services your loan, a sub-prime borrower comes into this situation with a huge credibility problem. The fact that you are a sub-prime borrower is a prejudicial “scarlet letter.” After all, you have allegedly poor credit; you didn’t/don’t pay your bills on time; you might have filed bankruptcy; you lost a home before, etc., etc. In the back-office talk among employees, sub-prime borrowers are routinely talked about as “deadbeats,” “flakes,” “losers” and “schmucks.”

No one really knows how many “opportunistic foreclosures” have occurred, but one thing we do know for certain: Almost every foreclosure results in a new mortgage loan.

Frankly, sub-prime lending is a greedy mess. Predatory lending is well covered in any number of other web sites and publications; our focus here is on the servicing abuses that tend to be related to it as opposed to solutions for the originating part of the problem.