Limiting abuse and opportunism by mortgage servicers

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Abstract
This article discusses the opportunistic and abusive behavior of some servicers of residential mortgages toward the borrowers whose loans they service. Such abuse includes claiming that borrowers are in default and attempting to foreclose even when payments are current, charging borrowers unwarranted late fees and other kinds of fees, force‐placing insurance even when borrowers already have a policy, and mishandling escrow funds. The causes of such practices and the market forces that can rein them in are discussed. A case study of one mortgage servicer describes its unfair treatment of borrowers and the reforms imposed by federal regulators and other market participants. Both regulatory agencies and ratings agencies appear to have increased their scrutiny of servicers’ behavior, and states have passed new legislation to limit abuse. The article concludes with a discussion of proposals for further reform should these steps prove inadequate.