Predatory mortgage servicing is abusive, unfair, deceptive, or fraudulent

mortgage servicing A mortgage servicer is a company to which some borrowers pay their mortgage loan payments and which performs other services in connection with mortgages and mortgage-backed securities. The mortgage servicer may be the entity that originated the mo ...

practices of some

mortgage servicers A mortgage servicer is a company to which some borrowers pay their mortgage loan payments and which performs other services in connection with mortgages and mortgage-backed securities. The mortgage servicer may be the entity that originated the mo ...

during the mortgage servicing process. There is no legal definition in the United States for predatory mortgage servicing. However, the term is widely used and accepted by state and federal regulatory agencies such as the

Federal Deposit Insurance Corporation The Federal Deposit Insurance Corporation (FDIC) is a State-owned enterprises of the United States, United States government corporation supplying deposit insurance to depositors in American commercial banks and savings banks. The FDIC was cr ...

Consumer Financial Protection Bureau The Consumer Financial Protection Bureau (CFPB) is an independent agency of the United States government responsible for consumer protection in the financial sector. CFPB's jurisdiction includes banks, credit unions, securities firms, Payday lo ...

Office of the Comptroller of the Currency The Office of the Comptroller of the Currency (OCC) is an independent bureau within the United States Department of the Treasury that was established by the National Currency Act of 1863 and serves to corporate charter, charter, bank regulation ...

Federal Trade Commission The Federal Trade Commission (FTC) is an independent agency of the United States government whose principal mission is the enforcement of civil (non-criminal) United States antitrust law, antitrust law and the promotion of consumer protection. It ...

and Government Sponsored Enterprises (GSEs) such as

Fannie Mae The Federal National Mortgage Association (FNMA), commonly known as Fannie Mae, is a United States government-sponsored enterprise (GSE) and, since 1968, a publicly traded company. Founded in 1938 during the Great Depression as part of the New ...

and

Freddie Mac The Federal Home Loan Mortgage Corporation (FHLMC), commonly known as Freddie Mac, is an American publicly traded, government-sponsored enterprise (GSE), headquartered in Tysons, Virginia.subprime In finance, subprime lending (also referred to as near-prime, subpar, non-prime, and second-chance lending) is the provision of loans to people in the United States who may have difficulty maintaining the repayment schedule. Historically, subpr ...

Alt-A An Alt-A mortgage, short for Alternative A-paper, is a type of U.S. Mortgage loan, mortgage that, for various reasons, is considered riskier than A-paper, or "prime", and less risky than "subprime lending, subprime," the riskiest category. For thes ...

, scratch and dent, and toxic mortgages that are being serviced by special or default servicers or servicers and lenders that are financially in trouble. There are many motives for predatory servicing practices and a report titled Misbehavior and Mistake in Bankruptcy Mortgage Claim by

Katie Porter Katherine Moore Porter (born January 3, 1974) is an American politician and lawyer who served as a U.S. House of Representatives, U.S. representative from California from 2019 to 2025. She is a member of the Democratic Party (United States), Dem ...

, professor of law at the

University of Iowa The University of Iowa (U of I, UIowa, or Iowa) is a public university, public research university in Iowa City, Iowa, United States. Founded in 1847, it is the oldest and largest university in the state. The University of Iowa is organized int ...

(now member of the

United States House of Representatives The United States House of Representatives is a chamber of the Bicameralism, bicameral United States Congress; it is the lower house, with the U.S. Senate being the upper house. Together, the House and Senate have the authority under Artic ...

) details the effects and damages caused by servicing abuses. In mortgage securitization transactions, the mortgage servicer forwards the borrower's payment of principal and interest to the certificate holders (investors) of the special securitized trust that owns and holds the promissory notes secured by the mortgages and deeds of trust. The

mortgage servicer A mortgage servicer is a company to which some borrowers pay their mortgage loan payments and which performs other services in connection with mortgages and mortgage-backed securities. The mortgage servicer may be the entity that originated the mo ...

, however, is allowed to retain late fees, BPO fees, inspection fees, and other fees charged or assessed to a borrower's account. In addition to the fee income, the servicer is allowed to retain the net liquidation proceeds of any foreclosure sale (net after foreclosure expenses and principal balance to investors). This provides an incentive to unscrupulous servicers who aggressively interpret mortgage documents to add additional fees to a borrower's mortgage account. Many times, the additional fees added on create an event of default allowing the

to foreclose on the property. This practice is commonly referred to as manufacturing a default or manufactured default.

Legality

While there are no specific laws against predatory mortgage servicing abuses, there are local, state, and federal laws against many of the specific practices commonly identified as predatory mortgage servicing abuses, and various state and federal agencies use the term as a catch-all term for many specific illegal activities in the mortgage servicing industry. Predatory mortgage servicing is not to be confused with

predatory lending Predatory lending refers to unethical practices conducted by lending organizations during a loan origination process that are unfair, deceptive, or fraudulent. While there are no internationally agreed legal definitions for predatory lending, a 20 ...

which is used to describe the unfair, deceptive, or fraudulent practices of mortgage brokers and lenders during the mortgage loan origination process.

References

{{reflist Mortgage industry of the United States Consumer fraud Mortgage-backed security United States housing bubble Abuse Deception Usury

Legality

See also

References