What is Predatory Mortgage Servicing?

Predatory mortgage servicing is a practice where mortgage servicers use ethically questionable and sometimes illegal methods in dealing with their customers. People may be enticed to switch to a new mortgage servicer with an offer of a special deal or service, only to find that once they transfer, the company changes the interest rate or terms, or engages in other activities that are harmful to borrowers. People who have been victims of predatory mortgage servicing may be able to file legal claims if they can provide documentation of explicitly illegal actions.

In the financial industry as a whole, predatory lending of a variety of kinds is primarily a concern with borrowers who are in a vulnerable position because of income, age, low credit, or other circumstances. Many people who do not have very good credit and need loans are poorly educated and may not understand the terms of loans. They may also not be aware of their rights as borrowers, creating situations where lenders can engage in illegal practices without fear of reprisals because borrowers do not report them.

In the case of predatory mortgage servicing, the practices can start when someone initially files for a mortgage and is encouraged to falsify or alter information to qualify for a bigger loan. People may also not be provided with legal disclosures required when mortgages are originated, like discussions about the cost of the mortgage over time, information about origination fees, or detailed descriptions of the specific terms of the loan. Some predatory mortgage servicing practices involve encouraging people to obtain interest-only loans or other high risk loan products without making them familiar with the associated risks, creating a situation where people default on their loans.

A predatory mortgage servicer may abruptly change interest rates, not disclose information about the sale and trade of loans to other lenders, or change terms like due dates on the loan without providing sufficient notification. Borrowers may end up with an extremely high interest rate, as such loans commonly do not have capped interest rates. In the case of loans with an adjustable interest rate, the borrower may end up with a stiff bill when the balloon payment comes due or the interest rate is adjusted for the first time.

Consumers are usually advised to work with licensed mortgage professionals when they apply for loans to avoid predatory mortgage servicing schemes. Red flags in a mortgage transaction can include refusals to answer questions, pushing people to sign paperwork without reading, or promises that sound too good to be true. If people suspect fraud or other illegal activities may have been involved in a mortgage transaction, they can contact a legal aid attorney for free assistance, and they can also file a report with government regulators asking for an investigation.