BBB: "F" Grades to Chase, Litton, Ocwen

Monday, 30 August 2010

Written by Jorge Newbery

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Litton Loan Servicing received more consumer complaints than any other loan servicer in the three years through June 2010, according to the Better Business Bureau.  The 794 complaints against Goldman Sachs' Litton led Morgan Stanley’s Saxon Mortgage at 631 complaints, American Home Mortgage at 597, Ocwen at 521 and Barclay’s HomEq at 161. The BBB gave Chase, Litton and Ocwen “F” grades due to the volume of complaints filed, their failure to respond  and the seriousness of many complaints. Facing a BBB investigation in 2005 prompted by excessive complaints, the BBB voted to revoke Litton’s membership, but Litton promptly resigned. “They were arrogant,” said Dan Parsons, president of the BBB’s Houston chapter. “It was all about how much money they could make.”

Loan servicing has traditionally been a rather mundane business: collect payments from borrowers, earn a modest fee, and forward the majority of collections to investors. However, in the wake of the housing crisis, some servicers have clumsily transformed themselves into loss mitigation and modification behemoths, putting the fate of millions of American families in the hands of typically lightly trained, lowly-paid, and poorly incented call center employees.  For Ocwen, loss mitigation is so lowly regarded that it’s been shuffled to India.

Uncredited loan payments, excessive fees added to loans, undisclosed terms of trial and permanent loan modifications, poor communication, lost paperwork, inconsistent HAMP qualifications and the inability to contact anyone with authority are just a few of the complaints borrowers hurl at servicers.  Rather than provide permanent modifications, desperate borrowers are routinely baited and switched:  trial modification of three months are routinely extended to six months, nine months and longer while borrowers dutifully pay, only to be inexplicably  denied permanent modifications  and foreclosed upon.  This is no different than baiting homeowners with prime fixed rate loans, only to switch them to expensive commission-laden subprime loans  at the last minute(usually with the promise to refinance them to prime in a couple of years). As a result, these families who were pummeled when their mortgages were originated are now getting a second shellacking as they are booted out of their homes.

Tragically for many homeowners, foreclosing and evicting is easier and sometimes more profitable for servicers than reviewing and approving modification and short sale requests. Servicers are like blackjack dealers: they are often playing with Mortgage Backers Securities investors’ money and they get paid win or lose. If the house and the bettor both lose, so be it – there is still a paycheck waiting for the servicers. MBS investors thus far appear largely powerless to induce servicers to act in the house’s best interest. Notably, one MBS investor group, Impac, is bypassing their servicers, Bank of America and Wells Fargo, and is contacting borrowers directly to work out modifications and short sales. Unsurprisingly, Impac’s process appears significantly speedier and more efficient than that of most any servicer. This is further evidence  that MBS investors are generally on the same side as homeowners and want resolutions which help families and concurrently maximize recovery on their investments.

Despite many servicers’ history of poor grades, frustrated consumers, lawsuits, allegations of racketeering, and impeding solutions, the Federal Government is down on their hands and knees begging these hooligans to take taxpayer dollars to keep families in their homes. However, the carrot approach has repeatedly failed and now is the time to take out the stick to "compel businesses to do things that are in everyone’s interest that they might not otherwise be willing to do themselves." Maybe then their grades will improve, for everyone’s benefit.

Here is how the BBB rates servicers:

Aurora: B+

Bank of America: A+

Carrington: A+

Chase Home Finance: F

Citi Mortgage: A+

EMC: B-

First Horizon: B-

Flagstar: B-

GMAC: A-

HomEq: B-

Household Finance: A+

HSBC Financial Services: A+

Indy Mac: A

Litton: F

Nationstar: A

Ocwen: F

PHH: A+

Saxon: D-

US Bank: A+

Vericrest: A-

Wachovia: A+

Wells Fargo: B+

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