Bankruptcy specialists contend that some mortgage companies are overcharging borrowers, even as those homeowners face foreclosure. If these claims are true, it only adds insult to injury as more predatory lending practices come to light.

Not only is there scant oversight of the mortgage industry, but once a loan is funded, there's little monitoring of foreclosure practices. Some experts believe that even as homeowners slip deeper into debt trouble and face the loss of their homes, predatory lenders are continuing to gouge them with false or padded charges and miscellaneous foreclosure-related fees.

Senseless foreclosure practices

Examples cited by industry observers, or complained about by consumers, include such things as:

1. Charging fees for services not performed, or fines not actually due. Sometimes, lenders make extra cash by charging imaginary fees that are totally unwarranted. Mortgage documents and mathematical calculations can be complicated, so many consumers are unable to figure out when they're being bilked. At the mercy of mortgage companies, they often overpay, even while facing foreclosure and bankruptcy.

2. Overstating the balance owed on a home loan. University research into recent foreclosure data found that almost half of the loans analyzed in the study included inflated balances or vague, unspecified charges. In more than 90 percent of the cases, homeowners disagreed with mortgage company calculations, believing that they were both inaccurate and too high.

3. Accumulating various fees or charges that are intentionally erroneous. Most of the fees mentioned in the study were relatively small, but they added up to gigantic amounts of extra profit for those companies who collect them. If a lender has, for example, 200,000 customers across the U.S. and overcharges each of them by $100, it adds up to additional revenue of $20 million-for basically doing nothing.

4. Failing to follow basic industry regulations. Investigators have found that some mortgage lenders are so negligent or sloppy, they don't even comply with the most fundamental rules and regulations. A lender is required, for example, to show documented proof that they're the actual mortgage holder before attempting to collect payments from a homeowner. But some companies don't even verify this essential information.

The government steps in

The Justice Department, through its unit in charge of bankruptcy oversight, announced plans to investigate companies that file erroneous or fraudulent claims against their customers. One potential target is Countrywide, America's largest mortgage service company. Some officials believe that they misled many consumers, often intentionally failing to credit them with payments so that more late fees could be charged.

While Congress continues its investigation into the causes of the subprime mortgage crisis and the historic number of American foreclosures, increased oversight of the lending industry is often touted as a necessary, urgent step. Recent legislative proposals will mandate certification and licensing of mortgage loan officers, for example, a move that many consumer advocacy groups say is long overdue and critical to the protection of homeowners.

Published on December 27, 2007