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“Many first-time home buyers don’t realize that the lender that approves their mortgage could turn around and sell the servicing rights to a company they’ve never heard of. Now the homeowner might have to deal with a mortgage servicer that has bad customer service, charges late fees when it shouldn’t, or makes needless demands on borrowers.” The New York Times, March 2, 2024

And…your original mortgage lender can turn around and sell your mortgage to another lender and the servicing rights to another company, leaving you dazed and confused. All of this selling and transferring is legal because it allows the banking/mortgage lender industry to make more money by streamlining the care of their sometimes vast portfolios.

The problems for the borrower arise when the mortgage lenders or servicers don’t comply with the current regulations governing the financial industry, and when they don’t, the burden is mostly on the borrower to to get the errors corrected.

Unfortunately, I’m intimately familiar with the CFPB regulations governing mortgage servicers because I fought off foreclosure of my home for over a decade before I managed to sell at the last minute. The servicers of my mortgage knew I was an attorney, and I quoted the law to them verbatim, but they still refused to comply—they simply ignored me until after I sold my house and the attorney I hired filed a complaint in federal court. My servicer settled for just about ten times the amount they legally owed me before the sale of my home. (More in a later post, on financial institutions violating the law as part of doing business because it’s cheaper and easier).

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I don’t want this post to be a rumination on my past failings, but rather to focus on what I’ve learned dealing with mortgage lenders and servicers and to put together a brief primer to help you keep tabs on your mortgage. There is no need to think your lender or servicer is out to get you with every paper you’re asked to sign, but the Russian proverb translated as “trust but verify” and popularized in the U.S. by President Reagan, is good to keep in mind. And when dealing with the banking industry, I would modify it to “trust-ish but verify”.

This advice should not be limited to first time home buyers, because it seems that most consumers have a general understanding that the banking industry is regulated, so they '‘trust” all of the papers they are signing are “legal”. But when you make what is likely the largest purchase of your life and you need a loan to make that purchase (and who doesn’t?), it’s important to understand your rights as a consumer of a financial product.

1. The Consumer Financial Protection Bureau (CFPB), created in the wake of the Great Recession through the Dodd-Frank Act and the perseverance of Senator Elizabeth Warren (D Mass.), regulates financial products like mortgage loans, entities like mortgage lenders and servicers and other financial products like credit cards. I wrote a post discussing exactly how the CFPB directly helps consumers, and as a follow-up, Audrey Hood who writes The Civic Librarian published a fantastic guest post explaining how to access the CFPB consumer complaint data base. This data base, by the way, is a great way to investigate your bank or servicer and view the number and type of complaints filed against them.

2. In case you don’t already know, this is the difference between a mortgage lender and a mortgage servicer, provided by the CFPB:

— A mortgage lender is “the financial institution that loaned you the money. Your mortgage servicer is the company that sends you your mortgage statements. Your servicer also handles the day-to-day tasks for managing your loan.” And as I mentioned, they are not required to be the same company and both the lender and servicer can change at any time. (They do have to notify you in writing of these transfers). And the servicer’s “day -to-day tasks” are substantial — they take and apply your principle and interest payments and manage your escrow account if you choose to have one, and can initiate a foreclosure on your home.

3. Speaking of escrow accounts, my advice is to not establish an escrow account if you don’t have to — the only time it is required is if you put less than 20% down or have less than 20% equity in your home. I paid my taxes and insurance separately for a couple of decades and never had to worry about the servicer mis-applying the escrow ,or reviewing my statement each month, trying to understand if the proper amount had been paid or why there was a escrow shortfall at the end of the year. If there is an issue with the correct application of escrow money, it is more time consuming to correct then to pay taxes and insurance yourself.

4. Know which entity owns your loan. According to the National Association of Realtors (NAR) about 70% of all mortgages are owned and/or backed by Fannie Mae and Freddie Mac. Both are now classified as quasi-government agencies known as government sponsored enterprises (gse’s). According to the CFPB:

“Historically, they [Fannie Mae and Freddie Mac] were private companies operating with government permission and under government regulation. In late 2008, following the financial crisis, the U.S. government took over operations at both companies.”

And know which entity regulates your bank, in addition to the CFPB. It is probably the Office of the Comptroller of the Currency, and its website provides a way to check: https://www.helpwithmybank.gov/who-regulates-my-bank/index-who-regulates-bank.html

5. How do you dispute a suspected error by your lender or servicer? Again, the CFPB provides both helpful information about the financial industry, the statutes and regulations that govern it and the process to file a dispute against a particular lender or servicer, including sample dispute letters, which you can access here: https://www.consumerfinance.gov/ask-cfpb/how-do-i-dispute-an-error-request-information-about-my-mortgage-en-1855/. You can also file a dispute by phone by calling the CFPB at: (855) 411-CFPB (2372) or online here: https://www.consumerfinance.gov/complaint/

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I hope this short bit of information has helped you better understand your rights when dealing with a mortgage lender or servicer. I would love to hear your thoughts in the Comment Section below. Have you had any problems with your mortgage? Have you contacted the CFPB to ask a question or file a dispute?

And if you have a specific question about a problem with your mortgage, ask it in the comment section, and I’ll be happy to answer or point you in the right direction.

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1. In case you think my concern with financial industry violations might be a tad overblown, here are links to some recent settlements between the government and this industry (not all directly involve mortgages):

   — Brought by the CFPB: https://www.consumerfinance.gov/enforcement/actions/

— https://www.justice.gov/opa/pr/justice-department-and-state-north-carolina-secure-135-million-agreement-first-national-bank

— This is a whopper: https://home.treasury.gov/news/press-releases/jy1925

— Case brought by the FDIC and settled in 2019: https://www.fdic.gov/news/press-releases/2019/pr19103.html

— A settlement agreed to by the Attorney General of Texas and my favorite bank, Wells Fargo: https://www.texasattorneygeneral.gov/news/releases/ag-paxton-announces-575-million-settlement-wells-fargo-violating-consumer-protection-laws

And I could go on…