Paying your bills on time? A Monthly Statement & Your Credit Report May Say Otherwise...

We could stop some foreclosures, but it would take an Act of Congress!

We know the importance of reviewing our credit reports on a regular basis, but what is often overlooked is the importance of reviewing our monthly loan statements.

In a nutshell, if you are paying a mortgage, student or auto loan without the benefit of a monthly statement, you could be headed for trouble without knowing it. It's important to understand what can happen when payments are made without verifying how, or if they are being applied correctly. Without the aid of a monthly statement, borrowers are essentially operating on blind faith and trusting that accounting errors, or even fraud, won't happen to them.

Could some foreclosures be averted if the homeowner had a simple tool?

Yes.

That simple tool is a monthly statement that tracks your payments. The statement includes a breakdown of principal, interest, escrow payments or any additional principal payments, and alerts the borrower if any funds have been misapplied before they run into trouble.

Robert J. Wright founder of msfraud.org agrees, "many foreclosures could have been avoided had borrowers been aware of accounting errors and fraud going on with their loan servicing." Wright is one of countless consumers who claim he was falsely accused of being in arrears on his mortgage, and then unlawfully foreclosed on.

According to Wright, "Homeowners have been forced into bankruptcy or Forbearance Agreements and even lost their homes simply because they were unaware of fraudulent manipulation of their payments, or unaware their payments were not accounted for properly by their mortgage servicing company."More

Proposals are good first step
By Jack Guttentag
The Mortgage Professor

Two previous articles examined the Federal Reserve Board's proposals for tightening mortgage underwriting requirements and for limiting broker charges to borrowers. These are longstanding areas of board concern. In contrast, servicing abuses seem to have been discovered by the board only recently. The proposals are weak, but they are a good first step.

Proposal No. 1 would require that servicers credit payments on the day a payment is received. Proposal No. 2 would require servicers to provide accurate payoff statements within a reasonable time to borrowers who intend to pay off their loan. Both are fair, clear and not onerous for the lender.

Proposal No. 3 would prohibit servicers from imposing late fees or delinquency charges when the scheduled payment is received on time but does not include prior late charges. This rule would eliminate the practice of "pyramiding late fees," where the servicer continues to charge late fees until all prior late fees have been paid.

But this proposal does not cover an even worse type of pyramiding. When the scheduled payment is received on time but the escrow payment is short, the practice is to place the entire payment in a suspense account, to charge the borrower a late fee, and to send a delinquency notice to the credit bureaus.

If the servicer does not send out monthly statements (which many do not, see below), the borrower will be in the dark. The next month's regular mortgage payment will also be deposited into the suspense account, and the borrower incurs a second late charge and a second 30-day delinquency report. At this point, the account may go to collections, and the borrower will suddenly find himself dunned for a laundry list of fees, with failure to pay possibly resulting in foreclosure.

The board's proposed rule against pyramiding late fees should be broadened to require that monthly payments received on time be credited when only the escrow portion is deficient.

The board's fourth proposal "would require a servicer to provide to a consumer upon request a schedule of all specific fees and charges that may be imposed in connection with the servicing of the consumer's account ... and an explanation of each. ..." The fees and charges covered include those of third parties that are passed on to consumers.

Because servicing does not involve third-party fees until a loan goes into collection, this proposal is relevant mainly to borrowers who get behind in their payments and are referred to the servicer's collections department. At that point, the borrower will be billed for a broker's price opinion, property inspection, legal services and more.

Borrowers in trouble do need protection, but requiring that the servicer provide them with a list of charges, when there is no standard that such charges must meet, is not going to help. What could help is mandatory disclosure combined with a rule that servicers cannot mark up the prices charged by third parties or profit from them in any other way.

Conspicuous by omission from this proposal is the provision of information to all borrowers, so they can keep themselves out of trouble. The single most important step that the board could take to curb servicing abuses is to mandate the provision of monthly statements that show everything that has transpired during the month -- and that is comprehensible as well as comprehensive. MORE