Protecting borrowers

N.C. can do more on 'predatory loan servicing'

Sean Coffey

CHAPEL HILL - News stories have highlighted the effects of the subprime meltdown on borrowers throughout North Carolina. While much of the focus has been on practices that many would construe as predatory lending, state legislation went into effect April 1 to regulate another set of practices, ones that consumer advocates have described as "predatory loan servicing."
This term encompasses several practices that harm borrowers, including loan servicers illegally charging borrowers extra fees, not crediting borrowers' payments or charging borrowers for insurance they already have.

The new law makes progress in regulating loan servicing, but it fails to address all the predatory loan servicing practices that harm borrowers.

Loan servicing companies collect and process mortgage payments from borrowers and submit the payments to the mortgage owners. Two key factors may lower the incentive for servicers to act in the best interests of homeowners.

First, while borrowers choose their lenders, they have no input as to what company services their loan.

Second, loan servicers are typically allowed to keep all revenue generated from the fees they charge borrowers.

Kurt Eggert, a law professor at Chapman University, has cited the example of Countrywide Financial CEO Angelo Mozilo, who allegedly bragged in 2004 that fees generated an extra $17 million to $19 million in monthly revenue.

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