Published January 11, 2013
Caylin Crawford found herself out of work after a snowboarding accident and went to U.S. Bank for some help with her mortgage.
The 24-year-old homeowner said she was up-to-date on her monthly payments in January 2011 when she called to ask about loan-modification options.
"They said, 'We can't do anything to help you unless you are behind on your mortgage," she recalled. "'So stop paying, and then we can modify your loan.'"
Ms. Crawford said she took the bank's advice. But the bank didn't modify her loan. Instead, it foreclosed on her home.
Ms. Crawford has sued the bank as well as the Federal Home Loan Mortgage Corp., or Freddie Mac (FMCC), in a federal district court in Minneapolis, alleging wrongful foreclosure. U.S. Bank services the loan, and Freddie Mac holds the note. She said she is now in settlement discussions with Freddie Mac.
"I only owed $28,000 on my house when they foreclosed," Ms. Crawford said in a telephone interview. "They've probably spent $60,000 defending their foreclosure instead of just working with me."
Thomas Joyce, a spokesman for U.S. Bank, said the company has no record of its representatives telling Ms. Crawford not to pay her mortgage. "We've long been committed to sound loan modification and foreclosure practices," he said. "And we've always regarded foreclosures as a last resort."
Mark Goldman, a California mortgage broker and a lecturer at the Corky McMillin Real Estate Center at San Diego State University, said Ms. Crawford's claim is common.
He says companies that service loans sometimes can make more money when the loans are in default. "When a loan goes into special services, the servicers get huge increases in servicing fees," he said.
Mr. Joyce, at U.S. Bank, said this simply doesn't happen. Defaulted loans "are not economically advantaged in any way," he said. "We don't collect any fees or income at foreclosure. We spend millions of dollars to help keep people in their homes, because that is what's best for all concerned."
Federal housing authorities, however, have wrestled with perverse economic incentives at mortgage-servicing companies.
"It is clear that the mortgage servicing compensation model is broken and should be fixed," Treasury Secretary Timothy Geithner and Secretary of Housing and Urban Development Shaun Donovan wrote in January 2011 letter to Edward DeMarco, acting director of the Federal Housing Finance Agency, which oversees Freddie Mac.
And earlier this week, 10 major banks that service mortgages agreed to pay $8.5 billion to settle charges they wrongfully foreclosed on people. The Federal Reserve and the Office of the Comptroller of the Currency, which exacted the settlement, more politely called it "deficient practices in mortgage loan servicing and foreclosure processing."
U.S. Bank was part of the settlement, as were Aurora Loan Services, Bank of America Corp. (BAC), Citigroup Inc. (C), J.P. Morgan Chase & Co. (JPM), MetLife (MET), PNC Financial Services Group Inc. (PNC), Sovereign Bank, SunTrust Banks Inc. (STI) and Wells Fargo & Co. (WFC).
The settlement covers more than 3.8 million borrowers whose homes went in foreclosure in 2009 and 2010. It doesn't cover Ms. Crawford, whose home went into foreclosure in 2011.
"The banks are paying this money to people they wrongfully foreclosed on two or three years ago, but they're still going through with wrongful foreclosures," Ms. Crawford said.
She said the loan-modification process and her ensuing foreclosure and lawsuit has worn her thin. She'd fill out documents, send them to the bank, only to hear they never got them, or lost them. They also sent her promises they wouldn't foreclose, and then they foreclosed anyway, she said.
Her experience led her to become an organizer with Occupy Homes Minneapolis, where she helps other foreclosure victims with remarkably similar stories.
"These people lost their homes. They were kicked out of their communities. Their neighborhoods suffered because tax values went down. Children were bounced around from home to home with parents in unstable living conditions. ...And nine times out of 10, it was because the bank told them not to pay so they can qualify for a loan modification," she said.
Mr. Goldman, who has observed this problem from a busy vantage point in California, argues that it goes far beyond bad corporate bureaucracy.
"They're bad people," he said. "If they want to implement a strategy to sell a bunch of credit cards or sell a bunch of loans, they get the resources and the people in place to make those things happen.
"If they wanted to solve homeowners' problems, they would have gotten people in place to solve those problems. Instead, they hired people away from Dairy Queen and Home Depot who had no capacity to do anything and no technical knowledge.
"Then they change policies, constantly," Mr. Goldman continued. "How many times have you heard from people like this lady that every time they called the bank they got a different story?"
The settlement, Mr. Goldman estimates, doesn't begin to match the damage banks have done to millions of people.
Ms. Crawford has regained employment as a research technician at the University of Minnesota. She is still living in her home, but it has been foreclosed, a black mark she'll carry on her credit report for years to come.
"I wanted to buy Christmas decorations. But I didn't know if I would be here for Christmas," she said.
The best deal she says she can hope for now is for the bank and Freddie Mac to sell the home to her mother for cash, so she can keep living in it.
"If I had children to take care of, I would have put resources into keeping a roof over their heads instead of fighting," she said. "And the banks would have gotten away with this."
(Al's Emporium, written by Dow Jones Newswires columnist Al Lewis, offers commentary and analysis on a wide range of business subjects through an unconventional perspective. Contact Al at firstname.lastname@example.org or tellittoal.com).