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Fabrication of Default

Posted by CM on September 4, 2009


By Coleen Martinez
coleen.martinez@stopmortgageservicers.org
9/4/09

{This is another post from my reading of Ms. McGrath’s testimony to Congress.  Please note that Ms. McGrath’s words were so important and concise that I could not properly put her words into my own.  Therefore, most of this post is verbatim.  I have added the hypothetical examples.  Click here for the full testimony.}     

In my last post, Making Money as a Mortgage Servicer, I wrote about late fees.  This is how the late fees system works.  Our hypothetical situation has a mortgage for $245,000 with a $1,750 monthly payment.    

  • The date the monthly payment is received is manipulated in order to create a late payment.
  • A 5% “late fee” is triggered. [5% of $1,750 is $87.50]
  • Suspense: The late fee is deducted from the next month’s principal and interest payment. [1750 – 87.50 = 1662.50]
  • So, the next month’s payment immediately becomes a partial payment ($1662.50), which is placed in suspense and creates another late fee for that month. 
  • With this one late payment, the homeowner is now considered 1 month delinquent. 
  • Below is a chart following the payments until a default is reached (90 days). 
Month Payment Late? Y/N Fee of 5% Suspend Amount Owed
January 1750 Y 0 0 0
February 1750 Y 87.50 From January
1662.50
1750
March 1750 Y 87.50 From February
1662.50
1750
April 1750 Y 87.50 From March
1662.50
1750

 

  • If I have understood this concept correctly, with this situation, the borrower will always be behind by a full payment amount. 
  • Property Preservation (PP): 60-days delinquent; real estate agents drive-by the property to make sure that it is not in a condition that would jeopardize the investment of the trust. 
  • Property Preservations can occur multiple times a day, week, or month. 
  • The charge for PP’s can range from $10.00 to $150.00.  The charge is incurred by the borrower through fees. 
  •  90-days delinquent: Foreclosure Proceedings begin and with this come Broker’s Price Options (BPO).
  • According to Ms. McGrath’s testimony, “The mortgage servicer will order a “quick sale” price for the property from the BPO.  This will often drop the price of a home by thirty, forty, or fifty thousand dollars1.”  This situation can lower the neighborhood value and depress that area’s market.

Based on my experience, the BPO’s ordered for my house resulted in inflated prices.  The BPO’s were not at all representative of the current market value of the home, neighborhood, and town. 

Sources:
1. Testimony of Maureen McGrath on behalf of National Advocacy Against Mortgage Servicing Fraud.  Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises.  United States House of Representatives.  Field Hearing on “Broken Dreams in the Poconos: The Response of the Secondary Markets and Implications for Federal Legislation.”  6/14/04.

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