Its one thing to have your house foreclosed in the subprime mortgage crisis. Its something altogether different and frustrating to have your house on the block because of an error beyond your control.
Consumers are suffering because of the mistakes and predatory practices of mortgage servicers, says a West Virginia University professor in her work to be published soon in the Journal of Consumer Affairs.
Additionally, homeowners whose mortgages have been sold never have the opportunity to choose their mortgage servicer, nor can they switch servicers without refinancing their homes.
Paula Bone, professor of marketing in WVU s College of Business and Economics, investigated how consumers can strengthen their position in financial markets, particularly the mortgage servicing industry.
Unfortunately, mortgage servicers make mistakes, and some use predatory servicing practices that negatively impact consumer well-being,said Bone, who has done extensive research in the area of consumer affairs.
One common problem is erroneous accounting of interest and principal, which can trigger automated foreclosure processes.
Another error is the inadequate maintenance of insurance records. As a result, mortgage servicers will purchase insurance plans in the name of the homeowner even if another insurance plan is in effect.
This insurance is often more expensive than that offered by alternative vendors,Bone said.The consumer pays for it, even if it is not needed, until the mistake is resolved.
The inappropriate distribution of property taxes from escrow accounts is yet another example of a servicing error. When it appears back taxes are owed on a property, even if its a mistake by the loan servicer, the local government can sell the property for the amount owed. If the back taxes arent paid soon enough and the property is sold, the sale is considered final.
While examples like these are typically accidental, there is some evidence of predatory practices, Bone said. This includes charging for services that are not performed and holding payments until after the due date, so a late fee may be assessed.
Another issue may be increasing the principal and interest rate of a fixed-rate mortgage and failing to alert borrowers that late fees and forced place insurance rates were paid first out of payments, rendering the loan delinquent and resulting in automatic foreclosure proceedings.
While there are laws that aim to protect consumers against mortgage servicing errors and mistakes,Bone said,it is important to note that even the savviest consumer of financial services is trapped in this market because of the inability to switch providers.
Bone received a bachelors degree in marketing from the University of Alabama and a doctorate in marketing from the University of South Carolina. Her research has been accepted in the Journal of Business Ethics, Journal of Advertising, Journal of Business Research and Journal of Consumer Research, among other publications. She was named a WVU Foundation Outstanding Teacher in 2003.