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Liz Weston

Regulator targets mortgage servicers

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The Consumer Financial Protection Bureau wants to “whip the mortgage servicing industry into shape,” as this post on The Consumerist puts it, and such action is long overdue. Mortgage servicers have been the choke point in the mortgage mess, often costing people their homes because of their inefficiency, inaction and indifference. The CFPB wants to increase transparency and accountability among servicers, which take people’s mortgage payments and pass them along, minus a small cut, to the loans’ owners. Here’s how CFPB head Richard Cordray put it in a speech today to Operation HOPE:

“This industry has never had a requirement, or a strong incentive, to meet the needs of consumers.  Even before the crisis, there were already problems with bad practices and sloppy recordkeeping. When the financial crisis hit, however, things got much worse…And instead of investing in new personnel and processes, too many mortgage servicers took short-cuts that made things far worse for homeowners in trouble.

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Picture every bad customer service experience you have ever had: calls going unanswered, glacially slow processes, mistakes made and not fixed, a kaleidoscopic cast of human beings who never seem to deal with you more than once, your paperwork submitted and lost repeatedly.  Now, multiply that mountain of frustration exponentially, and you can begin to get an inkling of the scope of the problems that Americans face:  house by house, neighborhood by neighborhood, and community by community.

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And it is not just consumers who suffer.  Mortgage investors do not benefit from a broken system where servicers do not fulfill their obligations or make reasonable efforts to mitigate losses.  And this failed business model widened the pain of the housing crisis and destroyed an incalculable measure of consumer trust in financial businesses, perhaps in a lasting way.”

Cordray points out that consumers have absolutely no control over which company winds up servicing their loans and can’t walk away from bad service. He quotes Abraham Lincoln, who said, “The legitimate object of government is to do for a community of people whatever they need to have done but cannot do at all or cannot do so well for themselves in their separate and individual capacities.”

Like everyone else who’s covered the mortgage industry, I’ve heard horror story after horror story from people given the runaround by their mortgage servicers. People have lost their homes, and investors have suffered far worse losses than necessary, because the servicing industry is so messed up.

The CFPB’s proposed rules won’t give people back the homes they’ve already lost, but it could prevent needless foreclosures in the future.

Reluctant lender blocks quick foreclosure solution

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Dear Liz: Is there any way to expedite the foreclosure process? My wife bought a townhome shortly before we were married. Long story short, it didn’t fit our family once we got married and had a baby. We bought a larger house and tried renting the townhome but couldn’t cover the mortgage payment. We attempted a short sale, but the bank refused a good offer, so we let it go into default. We even offered to do a deed in lieu of foreclosure, but the bank refused unless we provided financial information for me, too. Since I’m not named on the mortgage and wasn’t even around when she got the loan, I refused. We’ve mentally and financially prepared for foreclosure and now just want the process complete. The bank, though, doesn’t seem to be in any kind of hurry. The process is now entering the third year with no action on their part, and we haven’t even been to the property in well over a year. We’ve told them expressly that we aren’t fighting them on the foreclosure. At this point we just want to move on.

Answer: Offering a deed in lieu of foreclosure — in which your wife hands over the keys in return for being released from the loan — was probably your best bet to speed things along. If you don’t want to provide the financial information the mortgage company is requesting, you’re stuck with waiting this out.

It’s unfortunate, because many lenders prefer deeds in lieu as a cheaper, faster way to get control of properties they’re going to wind up with anyway. The idea is that the homes probably will be in better condition than if an angry borrower or squatter trashes them, plus the costs of formal foreclosures are avoided. As foreclosure times have lengthened, some lenders have even sent out letters to underwater homeowners in default urging them to consider a deed in lieu transfer.

One thing you should investigate is whether the lender can come after your wife for a “deficiency judgment.” If it is allowed in your state, your wife could be liable for any leftover debt that isn’t paid off with a foreclosure sale. Talk to an attorney familiar with credit and foreclosure laws in your state.

Weak bank? Maybe it’s time to move your money

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Dear Liz: I have all my money (less than $150,000) in one small bank. I love my bank, but Bankrate.com’s Safe and Sound report shows the bank having only a single star. I asked someone at the bank about it, and this person said the rating wasn’t important. Is it?

Answer: Of course it is. Your deposits are under the $250,000 limit protected by the FDIC, but a weak bank can fail, which can be disruptive to depositors. The bank that takes over typically doesn’t have to abide by the policies or interest rates promised by the failed bank. If regulators can’t find another bank willing to take over, you may have limited access to your money for a few days until your deposits are refunded to you.

A bank with “very questionable asset quality, well below standard capitalization and lower than normal liquidity” — phrases Bankrate.com uses to describe your institution — probably isn’t the best place to have your money.

Finding an apartment after foreclosure

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Dear Liz: My wife and I went through a foreclosure last year and need to rent an apartment. We have no credit card debt and over $30,000 in savings on an income of $75,000. We know that our credit will be an issue on apartment applications because of the foreclosure. What can we do to improve our chances of getting a decent apartment in a safe neighborhood?

Answer: Although foreclosures may not carry the same stigma they did before the real estate bubble burst, they still wreak havoc on your credit scores. Your scores will need three to seven years to completely recover, and that’s if you inflict no further damage. Paying your bills on time and using credit responsibly will help you rehabilitate those numbers.

In the meantime, you can increase your odds of finding a good place by looking for mom-and-pop landlords, rather than applying at apartments managed by huge corporations. The big companies usually rely on credit scores to screen out applicants, while a smaller landlord may be more flexible. Offering to make a bigger deposit or to pay several months’ rent in advance might help persuade them, said Stephen Elizas, author of “The Foreclosure Survival Guide.”

Find cheaper checking and ditch your bank

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If you’re sick of rising bank fees, check out a new feature at NerdWallet that allows you to compare the costs of more than 120 different checking accounts across a spectrum of banks and credit unions.

You’ll answer a few questions about how you use your account, including the minimum balance you can maintain and how much you’ll deposit each month. The feature serves up the best matches based on your answers. If you have enough cash on hand to qualify for an interest-bearing checking account, the feature can help you find some good options.

You also might want to read a couple of my previous posts on this topic: “How to shop for a new bank” and “7 steps to say ‘buh-bye’ to your bank.”

Changing banks isn’t hassle-free, but you can save some decent money switching to an institution that actually wants your business, rather than punishing you for it.

Missing or bogus tax forms? Here’s what to do

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A couple of my Facebook fans haven’t gotten their taxes done because they’re missing key forms–one has a W-2 that’s incorrect, while the other is missing a 1099-R.

These aren’t unusual problems, so I’m hooking you up with the resources you’ll need if you’re facing a similar situation. Here’s what to do:

Gather relevant information. In the case of a missing or incorrect W-2, you’ll want to have handy the employer’s exact name, address and Employer Identification Number (EIN) if possible. (You can find the EIN on a previous year’s W2, if you have that.) It’s also handy to know what the missing or incorrect form SHOULD say, if you have that information from your year-end pay stub or bank records.

Call the IRS at 800-829-1040. Expect to spend a fair bit of time on hold, as they’re a bit busy this time of year. In the future, you can call the agency if you haven’t received a form by Feb. 15 (in other words, don’t wait until the last minute).

Explain the problem. With missing or incorrect W-2s, ask the agent to open a Form W-2 complaint. You’ll need to fill out a Form 4852, which is a substitute W-2 you fill out using the information you have, such as a year-end pay stub. You can find the form and other information here. Missing 1099s often aren’t a big deal, since you don’t need to attach them to your form, with the exception of the 1099-R, which reports tax withheld on retirement plan distributions.

Expect this to delay your refund. If you can’t get a corrected form in time (which is doubtful, at this point), your refund may be held up while the IRS verifies your information.

You may need to file an amended return. If you get a corrected form after the tax-filing deadline and the amounts are different than the ones you entered on your form, you may have to file a 1040X amended return.

You could also consider filing for an automatic six-month extension. You’ll still need to pay any tax owed by April 17, and could face some penalties if you underpay, so use this as a last resort.