The new Consumer Financial Protection Bureau just released new rules demanding changes in how delinquent mortgages are serviced by banks. Rules include dedicated representatives for mortgagees who are facing foreclosure and collection stays on accounts seeking loan modifications.
Hopefully, this is going to mean better service for troubled mortgages, but it could have lasting ramifications for all mortgagees. Unfortunately, as regulations tighten, costs rise and industry professionals are predicting that banks may look to sell mortgages to specialty servicing companies. There are benefits for both banks and borrowers, but there are also a number of concerns that could greatly affect your finances for years to come.
When your bank services your mortgage, you have an opportunity to look into your lender’s servicing practices. If you hear bad things in the news about how Bank of America mistreats borrowers, you know to stay away. This isn’t an option if your bank sells your loan to an outside company.
It begs the question: what if you don’t like the servicer? At least before, you could take some of the blame for picking a potentially lousy servicer. If mortgages are sold off to third parties, you are at the mercy of the company who places the highest bid. Even if you were to refinance, there is no guarantee that your next bank won’t sell your loan to the same servicer.
Remember how predatory lending played a role in the housing crisis? Well, creating a lending industry where those that originate a loan simply offload their obligations is likely to increase these types of practices. If the mortgage industry plans to simply cut the cord when collection gets tough, there isn’t a large degree of incentive to ensure that loans continue to be profitable into the servicing stage of a mortgage.
It might be all smiles when getting the loan, but wait until you see the company that is going to try and collect your mortgage payments.
In the short term, banks are looking to mainly sell mortgages that are already delinquent. Most mortgagees may never face the prospects of being sold to a servicing company. The good news is that not all banks sell their mortgages. It might be a question worth asking before signing on the dotted line.