"It was just a nightmare," said Safta, a physician at the University of Maryland Medical Center who got the loan to build an extension for her parents to live in.
What happened? Her servicer had not credited the payments to her account.
It might seem to be a simple problem. It's not. A growing number of lawsuits, investigations and studies indicate that servicer blunders and outright misconduct are common — and difficult for homeowners to resolve. Borrower advocates and regulators say the system is effectively broken.
"This isn't just a few technical errors," said Anne Balcer Norton, the state's deputy commissioner of financial regulation. "The entire servicing model needs to be revised."
Precise statistics on the incidence of rule-breaking or the percentage of loans with servicer errors have proved elusive.
"We do not yet really know the full extent of the problem," Federal Deposit Insurance Corp. Chairwoman Sheila C. Bair told the Senate Banking Committee in May.
But state and federal authorities have launched investigations. Servicers are negotiating what is expected to be a multibillion-dollar settlement with state attorneys general after an inquiry into bogus court documents, questionable charges and other foreclosure-related issues. An arm of the Justice Department, meanwhile, is finding "widespread problems" as it looks closely at servicer filings in bankruptcy cases across the U.S.
Calls for reform come at a time when good mortgage servicing is needed more than ever. Two million American homes are in foreclosure proceedings, and 2 million more are on the brink because their owners — according to servicer records — have missed at least two payments.
For homeowners trying to dig themselves out of a financial hole, a mistake by a servicer can make foreclosure more likely.
A mortgage servicer collects payments, manages escrow accounts and handles foreclosure. The largest are arms of big banks, working not only for their parent firms but also on the many loans bought by investors as mortgage-backed securities.
Many of the problems have arisen as homeowners who have fallen behind on their mortgages try to get back on track.
But sometimes servicers cause problems for homeowners who are not behind. On occasion — incredibly — they have gone after people who don't have a mortgage.
Bad record-keeping plays a role. Three years ago, Baltimore homeowner Brian J. Casey asked his servicer for a payoff statement so he could refinance. Litton Loan Servicing, which had taken over his account from a failing servicer, said Casey's balance due was higher than his own records indicated.
Casey said Litton had not credited him for a payment made to the previous servicer, and had tacked on fees that he questioned. So he asked for the loan history.
"They formally told me by electronic mail, 'We don't have it,'" said Casey, 55, who runs a Towson-based banking consultancy. "Literally, 'We don't have the records.'"
Casey said he pressed for a resolution but didn't get anywhere. Litton, meanwhile, piled on more charges and started foreclosure proceedings. While Casey acknowledged that he had been late on payments, he said he was less than three months behind — the point at which foreclosure is allowed.
Casey said he has spent more than $30,000 in legal fees trying to save his family's home, get his account questions answered and fix his ruined credit.
"It was like an absolute runaway train," he said.
Baltimore-based Civil Justice, a nonprofit that specializes in mortgage problems, has made Casey and his wife the lead plaintiffs in a federal class-action suit against Litton.
The class-action allegations focus on foreclosure robo-signing, in which servicer representatives sign documents without checking for accuracy or allow their signatures to be faked by others. But Civil Justice says it's also common to see payment records mismanaged in the handover from a failing servicer to a new firm.
"In this case, it could have been resolved very easily," said Phillip Robinson of Civil Justice. "It … escalated and snowballed because Litton just ignored him."
Litton declined to comment, noting the pending litigation.
The Mortgage Bankers Association, a trade group whose membership includes servicers, concedes that the industry has been plagued by mistakes, though CEO David H. Stevens said they have cropped up largely in cases in which borrowers were behind or seeking loan modifications.
"This is an environment no one has ever experienced in their lives, in terms of this housing crisis," he said. "Without question, far too many servicers were unprepared to deal with the magnitude of defaults. … So mistakes were made, and they were made in a variety of different ways."
Kurt Eggert, a Chapman University law professor who has testified before Congress about mortgages, said federal regulators have been slow to act because they have seen their role as safeguarding bank balance sheets, not consumers.
"Servicers … have been so understaffed that they are incredibly sloppy in their record-keeping," Eggert said. "So they've been charging people late fees who aren't late, not crediting payments properly, and then turning around and foreclosing based on late fees that should never have been charged in the first place."
In some cases, servicers go after homeowners who don't even have a mortgage.
Last year a servicer broke in, threw out possessions and changed the locks on a Florida retirement home a Massachusetts couple had paid cash for in 2005, even though the couple got wind of problems months earlier and told the company it had the wrong address, their lawsuit alleges.
The couple's attorney, Joseph F. deMello, said his clients agreed to a confidential settlement in April. He said he has similar cases across the country.
Safta, the Lutherville homeowner who wasn't getting her payments credited by Bank of America, managed to get her account corrected in mid-April, after two weeks of calls and emails. When the foreclosure notice showed up despite her repeated efforts, she drove to a local branch to plead with the manager to intervene.
She thinks that was what finally worked. Customer service was useless, she said.
"I would be told … 'We're going to look into it and try to get back to you,'" she said. "This would be the never-ending answer."
Several days after Bank of America sent the notice saying it intended to start foreclosure proceedings, a representative called to apologize and said the account had been corrected, Safta said. She received a letter telling her the company also would correct the credit-damaging information it had forwarded to four credit reporting agencies about her supposed delinquency.
But Safta said she was given few details about why her March and April payments were not credited in the first place. To make matters worse, she discovered that the bank didn't promptly deduct her June payment through the automatic-pay system she has used from the beginning. That took another round of calls and emails to resolve.
"It was just very upsetting," Safta said. "It gave me a bitter taste of what people are going through."
Bank of America told The Baltimore Sun that it traced the problem to a mistake made when her loan was entered into its system.
"The first payment was due on March 4, but instead it appeared as February 2," the company said by email. "When Ms. Safta made her first payment in early March, the system automatically placed the amount in a partial account since the system thought the payment was late. We have now corrected our records and system and all payments have been recorded."
The servicing industry has been stressed by the foreclosure crisis, which started in 2007 with subprime loans and spread to prime borrowers as the recession decimated jobs. Even beforehand, though, the industry routinely cut corners and took advantage of borrowers, studies suggest.
In an examination of 1,700 bankruptcy cases from 2006, University of Iowa law professor Katherine Porter found that servicers failed half the time to comply with basic court requirements, such as properly establishing the amount of debt and their right to collect it.
Consumer advocates say servicers have a disincentive to resolve individual problems or fix error-prone systems because they can pocket default-related fees. Income from those fees, Diane E. Thompson of the National Consumer Law Center told the Senate Banking Committee in November, can outweigh servicers' added expenses from default "for a long time."
Stevens, the Mortgage Bankers Association CEO, said it was "ludicrous" to suggest that servicers were profiting from the foreclosure disaster. "They're making mistakes, no question, but they're not making money," he said.
The big ones are. Bank of America's servicing profits totaled nearly $3.8 billion last year, with its revenue for servicing fees and related income rising about 6 percent to more than $7 billion. Wells Fargo's servicing-fee income rose 10 percent to $4.6 billion, even after subtracting the cost of unreimbursed default work.
"This is a very profitable business for us," Wells' chief financial officer, Timothy J. Sloan, told Wall Street analysts in April.
Safta, the doctor from Lutherville, said the last few months have changed her perspective on banks and servicers. She no longer trusts them to do their jobs properly.
"I'm checking my balance on my account on almost a daily basis now," she said.
What critics are saying
Mortgage servicers, which accept borrowers' payments, handle escrow accounts and oversee foreclosure, have been buffeted by a storm of criticism in recent months. Here's a taste:
"Servicers do not believe that the rules that apply to everyone else apply to them. This lawless attitude, supported by financial incentives and too-often tolerated by regulators, is the root cause of the robo-signing scandal, the failure of [the loan-modification program] HAMP, and the wrongful foreclosure of countless American families." — Diane E. Thompson of the National Consumer Law Center, in testimony to the Senate Banking Committee in November.
"Servicing is a crucial piece of the securitization industry, and so far it is being run on the cheap, half in the dark, with little effective regulation or oversight. … On a regular basis, servicers attempt to foreclose on property where either the borrower is current on the note or would be but for bad behavior by servicers, or where the investors would benefit from a loan modification." — Kurt Eggert of the Chapman University School of Law, in testimony to the Senate Banking Committee in December.
"[D]eficiencies and weaknesses identified during the reviews represent unsafe or unsound practices and violations of applicable law. … The results elevated the agencies' concern that widespread risks may be presented — to consumers, communities, various market participants, and the overall mortgage market." — Federal Reserve, Office of the Comptroller of the Currency and Office of Thrift Supervision, in a joint report in April after examining the largest servicers' foreclosure files.
"Since the focus [of the federal agencies' review] was so narrow, we do not yet really know the full extent of the problem. … Flawed mortgage banking processes have potentially infected millions of foreclosures, and the damages to be assessed against these operations could be significant and take years to materialize." — Federal Deposit Insurance Corp. Chairwoman Sheila C. Bair, in May testimony to the Senate Banking Committee