A few weeks ago I wrote an article about checking your mortgage statement, and interestingly enough my family was recently confronted with an erroneous mortgage statement.  This is the story of how Countrywide tried to steal my parents' money.  Additionally, I will give you some related information on the unscrupulous practice known as mortgage servicing fraud.

My parents are very fiscally responsible people, and they have been prepaying their mortgage by a significant amount every month. What happened was that Countrywide did not correctly apply their prepayments to the amount of  principal they owed  Fortunately, my mom keeps her own payment schedule in a spreadsheet so she spotted the error.  The difference in her schedule and Countrywide's was more than $700.

My mom called Countrywide promptly and pointed out the error, and the representative replied that the mistake was made because my parents paid extra principal payments online.  The representative also stated that if they wanted to make additional principal payments they needed to send in a check by mail.  This was an obvious lie because on Countrywide's web portal they have a box specifically marked for extra principal payments.   So my mom asked the representative why the extra payment option is there on the web interface if people had to send in physical checks.  This would mean that every single person making extra principal payments online would not be credited correctly.  The representative had no good answer and agreed to fix my parents' amortization schedule.

According to my mom Countrywide's  electronic only statement looked like they credited the principal and interest separately and correctly, but the principal amount was completely wrong.  She was only able to discover this because she kept her own schedule of payments.  I researched this situation online and apparently it happens more than you think.  There is an entire website called Mortgage Servicing Fraud devoted to describing and exposing these tricks the mortgage servicers play on honest paying customers. It was founded by a man named Jack Wright who lost his home to an evil servicer named EMC that  recently got slapped by the FTC.
 

On his site, you can see the various ways the mortgage servicers scam consumers.  Here is a quick summary of the common ways they do this.

  •  They manipulate payment schedules like they did in the case of my parents.  Basically, they do not credit your principal payments correctly and the amortization schedule gets more and more skewed with each payment.
  •  If you impound your property taxes and insurance, they pay your taxes and insurance late and then add a late penalty.
  •  They force place an insurance policy on your property that the property does not need and raise the amount you need to pay.
  •  They withhold your payments and say that your payment is late, and then charge a late fee.

According to Mortgage Servicing Fraud, the most unscrupulous servicers mainly target consumers who they deem to be immigrants or  lowly educated so that there is less of a chance of a complaint.  I have no evidence that Countrywide targeted my parents in this particular incident,  but my parents do have foreign sounding names so it does seem a little fishy. 

There are ways consumers can guard against these tactics.  First and foremost is to keep a record of all the payments you made and also your own mortgage schedule. Then if you suspect anything is wrong you can contact your servicer and ask for an entire schedule of their records.  According to the Real Estate Settlement Procedures Act you can write a "qualified written request" to your mortgage servicer on any disagreements.     The servicer is obligated to respond to you, and if you have proof of your own schedule then most of the time they should correct their mistake.  If they do not correct their mistake you can file a complaint with the FTC  and your state attorney general's office.  If enough people complain, these government offices will investigate.

If you do impound taxes and insurance, you should make sure that the taxes are paid on time and that the amount you are putting into escrow is correct.  There are some consumers who were lied to by their servicers when their servicers told them  that taxes have risen significantly.  You can check the tax amount for your parcel at your county tax collector's web pages, or you can just call them to find out.  The best way to avoid these problems is to forgo the impounding of taxes and insurance, but sometimes doing an impound reduces the mortgage rate.

The bottom line is that consumers have to be vigilant of the mistakes mortgage servicers make.  Some of these mortgage servicers are creating these problems on purpose to pad their profits, and some of them might just be plain incompetent. It is sad that you cannot trust these companies, but  as long as you can proof your side of the story it is possible for you to prevail.