Check Your Paperwork to Avoid Mortgage Problems


Welcome to the latest mortgage mess: Big lenders have to throw out or restart foreclosure proceedings because of their own processing errors.

It makes you think: If lenders are this sloppy when their own interests are at stake, how well are they protecting their borrowers’ interests?

Major lenders like GMAC Mortgage, JPMorgan Chase (Stock Quote: JPM) and Bank of America (Stock Quote: BAC) have halted foreclosures while they look into documentation issues. Among the problems reported are errors in figuring how much borrowers owe and improper foreclosure processing, like incorrect statements attesting to the accuracy of paperwork.

Part of the problem is that lenders are simply overwhelmed, and perhaps too tight fisted to add the staff needed to do the work properly. But securitization, the process of selling bonds backed by bundles of mortgages, has made matters even worse. By the time a foreclosure begins against a homeowner, the original lender may no longer have any stake in the loan. In fact, the servicing company that receives monthly payments and deals with the borrower may not know who actually owns the mortgage.

The problem has become something of a blessing for homeowners who find their foreclosures slowed or halted. But it also serves as a reminder to other borrowers to keep good records and to double check statements and calculations made by the loan servicing firms.

Even if you don’t wind up in foreclosure, you could be a victim of any number of processing errors. It’s worthwhile, therefore, to keep a record of all interactions with the servicing firm, including bank records showing that your monthly payments have cleared.

It’s common for a borrower to receive a statement every year updating the escrow requirements, or the amount paid every month to a fund the servicer uses to pay real estate taxes and, in many cases, homeowner’s insurance.

Because taxes and insurance premiums generally rise every year, your payment will gradually increase even if you have a fixed-rate mortgage. It’s worth a few minutes to double check the arithmetic in your escrow notices, and to make sure the servicer’s outlays match the figures you have from your insurance company and tax office.

Every January you should receive a statement with details on your loan, including the remaining balance and monthly payment. Use the Banking My Way Mortgage Loan Calculator to check the math. You can print out the calculator’s entire amortization schedule to see how your loan balance should diminish each year.

Pay special attention to any extra principal payments you’ve made to be sure they’ve been credited properly.

Borrowers with adjustable-rate loans should make sure the servicer has calculated the rate and payment resets properly. Check your original loan documents to find the index used in resets, as well as the “margin,” or percentage points added to the index to come up with the new rate. Track down the index value on your reset date from mortgage-data firm HSH Associates.

Then use HSH’s mortgage calculator to see if the servicing firm has figured your payment properly. Key in the remaining loan balance, the number of years left on the loan and the new rate.

Finally, keep all correspondence concerning any changes in loan-servicing companies. That could come in handy if there’s ever a dispute over which firm is handling your account.

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