Dear Dr. Don, I'm a first-time buyer saddled with a brand-new mortgage. The originating lender sold my loan to a bank that has been nothing but incompetent and troublesome for me. Its online interface works only intermittently. It won't even consider offering a biweekly payment schedule, much less an automatically drafted one. It leapt instantly upon the arbitration clause court decision, asking me to give up any hope of defending myself against any abuse they deem they could potentially get away with now that large groups can't band together (i.e., a class action) to stand up for their rights against a much better funded defendant. On that last part, I assume most every bank is doing that very exact thing, but it's still heinous.
No one asked me if I wanted to work with this mortgage servicer; I never had the opportunity to preview its options and requirements. Perhaps that was an unspoken consequence of working with a local mortgage originator, but nevertheless, the bank is very quickly demonstrating that it's going to be hell to work with it. Thus my question is: What options do I have to take my business away from the bank and (all terms being equal regarding payments, rates, etc.) award it to someone who is more willing to meet my needs? Thanks for considering this convoluted question. -- Joshua Jericho
Dear Joshua, Congratulations on your home purchase. I am sorry to hear of the frustrations you're having with your mortgage servicing firm. It's not clear what events led up to your issues, so let's tackle them one issue at a time, starting with the mortgage loan servicer. The loan servicer has many responsibilities, with the primary one being to collect payments from borrowers and apply them correctly to the loan account. As a borrower, your responsibility is to make payments on a prescribed timetable for a specific time at a defined interest rate.
Unfortunately, you don't get to vote where you send your mortgage payment. The only way to move away from a mortgage servicer you do not like is to refinance your loan and move to a lender that services the loans they originate. However, the transfer of servicing is so prevalent that while a lender may make a practice of servicing the loans it originates today, it can decide to change that practice tomorrow.
Barring your servicing being resold, this is a long-term relationship. If you are concerned that your loan is being serviced incorrectly, the Real Estate Settlement Procedures Act, or RESPA, has specific rules about notification, disclosures and reports that the servicer must provide you. In addition, it covers timelines and the process on how loan servicers must respond to customer complaints. While I acknowledge that online access to your account information has become an expected standard of service in the market, as far as I know there is no legal requirement that a mortgage servicer provide 24/7 online access to your information or online access at all.
I'm not a lawyer, so I can't tell you how an arbitration clause in a loan servicing contract may limit your ability to take the servicer to court. RESPA does speak to a borrower's ability to bring a private lawsuit. Here's an excerpt from the Department of Housing and Urban Development's "More Information About RESPA" Web page:
Loan Servicing Complaints
Section 6 provides borrowers with important consumer protections relating to the servicing of their loans. Under Section 6 of RESPA, borrowers who have problems with the servicing of their loans, including escrow account questions, should contact their loan servicer in writing, outlining the nature of their complaint. The servicer must acknowledge the complaint in writing within 20 business days of receipt of the complaint. Within 60 business days, the servicer must resolve the complaint by correcting the account or giving a statement of the reasons for its position. Until the complaint is resolved, borrowers should continue to make the servicer's required payment.
A borrower may bring a private lawsuit, or a group of borrowers may bring a class action suit, within three years against a servicer who fails to comply with the Section 6 provisions. Borrowers may obtain actual damages as well as additional damages if there is a pattern of noncompliance.
You'd need an attorney to sort out whether you're bound by arbitration or the RESPA provisions dominate, but my sense is there's no immediate need for you to find one. Your expectations concerning the mortgage just didn't match up with the reality of the loan servicer's practices.
Now let's address the biweekly payment issue. The net effect of a biweekly payment is to pay your loan down faster because you end up making the equivalent of one extra monthly payment a year. You, as a borrower, must make a payment by the first day of every month unless another day is designated in your loan documents. Mortgage servicers are able to grant borrowers a 15-day grace period for the payment to arrive. You are expected to make 100 percent of the payment each month.
Here is the rub that may have caused your angst. If a portion of the payment is not received, it is held and not applied to the loan until a full payment is received. Therefore, the expected benefit of making a biweekly payment (and therefore partial payment) is not achieved. Plus, a late fee may be accessed and quite possibly you will be reported as paying late on your credit report. Unless the original loan documents allow for a biweekly payment, this will always be the case. The mortgage servicer is under no obligation to accept a partial payment and post it to your account. If your goal is to pay down your mortgage faster, you should consider additional principal payments. An earlier column on biweekly mortgage plans explains it all in greater detail.
Be realistic. As a new homeowner, I suggest you take a higher-level view of what you want to accomplish financially and recognize that a mortgage servicer's job is to account correctly for your loan payments and to take action when payments are not made. Repaying a mortgage in an earlier time frame can make financial sense. Demanding a mortgage loan servicer to change how it accounts for loan payments is not. Let's chalk your frustrations up to being a newbie homeowner.