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The Need for Consumer Protection Laws for Homeowners

Mortgage Services Companies Are out of Control

On August 2 Center for American Progress Senior Fellow Peter Swire testified before the Senate Banking Committee on the need for national mortgage servicing standards. Swire’s testimony first discussed his CAP report from January 2011 titled “What the Fair Credit Reporting Act Should Teach Us About Mortgage Servicing.” That report highlighted that homeowners are not the customers of the mortgage servicing companies, which process monthly mortgage payments, but work on behalf of the mortgage investors to collect the monthly checks that get sent to investors. That report shows how there are no market or legal checks on mistakes or bad practices by these servicing companies.

Without consumer protections today, Swire explained why it is essential to have effective national standards for mortgage servicers.

Swire also testified about the horrendous practices by Washington Mutual, which was one of the largest mortgage servicers nationally at the time of Swire’s dispute with the now-shuttered company in 2006 and 2007. (WaMu collapsed in 2008 and most of its assets were later sold to JPMorgan Chase & Co.) Swire asked CAP to publish the letter he sent to WaMu in May 2007 showing details of the actual dispute where the servicer tried to charge more than $4,000 in erroneous fees to his family—even though Swire never missed a monthly payment.

Specifically, WaMu charged Swire for duplicate flood insurance and ignored proof of insurance coverage sent by State Farm Insurance. WaMu then tried to charge high monthly fees when Swire did not pay for the duplicate flood insurance.

The document here shows the systematic practices of WaMu to treat homeowners unfairly. In May 2007 WaMu temporarily stopped charging Swire for the flood insurance. But the calls from collection agencies soon started up again and the dispute did not end until that October, when WaMu finally agreed to waive all of the erroneous charges.

Today we have the same lack of protection against mortgage servicers that existed in 2007. Swire is a professor of banking law who paid every bill on time, and even he had to fight for 21 months and make more than 50 calls to customer service to get the erroneous fees removed. Mortgage servicing is a broken system for consumers and it is important to put in place effective national standards for mortgage servicers.

Peter Swire is a Senior Fellow at the Center for American Progress.

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