Why Your Bank May Be Wrong About What You Owe on Your Mortgage
Attention homeowners with mortgages, whether you're current or in default: Double-check your mortgage bank's math. There's a significant chance that the bank is wrong about how much you owe them, particularly if you're behind on your payments.
The revelation that mortgage servicers have been incorrectly applying payments and otherwise messing up their records isn't new. Professor Kurt Eggert of Chapman University documented the problem as early as 2004, and in his recent testimony before Congress, he underscored that nothing had changed. What is new, however, is testimony in New Jersey that gives real insight into how the mistakes are happening.
Late last week, Adrian G. Lofton gave the New Jersey court that is investigating mortgage fraud in New Jersey a swornstatement that details how mortgage servicer records are altered by employees of Lender Processing Services. Although the LPS employees are given logins and passwords to access the banks' own records for the purpose of correcting and reconciling the files, Lofton, a former LPS employee, explained how they instead destroyed the integrity of the banks' business records.
How It Works -- and Why It Fails
When an LPS client has a mortgage that goes into default, Lofton explains, LPS starts managing the loan. In order to do that, the appropriate LPS employees are given login information for the bank's database. As a security measure, each login is unique. That login grants access to the bank's entire database of current and defaulted loans, so that the employee can address whatever problem exists. For example, if a payment that should have been applied to a defaulted mortgage was accidentally credited to a current mortgage, the LPS employee needs access to the current mortgage to fix the error.
When an employee can't fix or reconcile data in an account, she is supposed to enlist the help of her supervisor, and if needed, her supervisor's supervisor. Each manager also has unique login information, and each bank apparently has additional security protocols that LPS employees are supposed to follow. If the employees and supervisors were following the rules, all would be relatively well. But according to Lofton, they were not:
"...109. ...most of the [LPS] Associate Team members had gained unauthorized access to the logins and passwords of their team associates and supervisors for all of the bank servicers' computers.
110. With this unauthorized access to the Bank's computers, the [LPS] associates could go into the banks computer files and manipulate the data....
112. I was particularly concerned that during "crunch" times ...Team Associates were cutting corners....
116. When an employee cut corners, the employee left out one or more steps that should have been performed and had to make something up.
117. The problem caused by cutting corners might not come to light until six months down the road when an attorney asks questions about the billing record."
Although Lofton doesn't say it, it's clear that some of those problems caused by cutting corners might never come to light.
Lofton traces the cause of the blatant rule-breaking to LPS's already well-documented obsession with speed over accuracy, something that has undermined the integrity of the lawyering of foreclosures. LPS rewards employees with bonuses based on how fast they resolve issues and how rarely they need to involve supervisors to get things done. That pressure to hurry up drives the employees to "make something up" as Lofton puts it, to get their jobs done.
Lender Processing Services was contacted on Thursday for comment, but as of publication had not replied.
Who Is Adrian Lofton?
Lofton worked for LPS from 2006 through 2007, and prior to that had worked for its competitors, starting in 2001.
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Given his experience at other financial institutions, he was deeply disturbed by what he saw at LPS and raised his concerns up through the chain of command. Lofton says he was fired for his attempts at whistle-blowing.
Lofton sued for wrongful discharge, but didn't hire a lawyer, instead attempting to represent himself. Perhaps unsurprisingly, he lost his case. (To get a feel for what it's like for a pro se plaintiff to try to depose a witness represented by counsel, see this transcript of Lofton's.)
As to Lofton's agenda, well, his current filing doesn't further one other than trying to uncover the truth: Lofton made his filing in the New Jersey investigation of mortgage fraud in its courts. To the extent he can "win" anything, all he'll get is vindication.
The Cheapest Way to Mess Up Bank Records
LPS is the 800-pound gorilla of mortgage default servicing, doing over $1 billion of revenue in that business last year, according to its most recently filed annual report. And its clients include most of the big guns of the home loan business. In his time at LPS, Lofton reports seeing inappropriate account manipulations happening with the records of:
Bank of America (BAC)
Countrywide (now BofA)
Washington Mutual (now JPMorgan Chase) (JPM)
Option One Mortgage
Wachovia (now Barclays) (BCS)
Key Bank (KEY)
HomEq (bought by Wachovia, then Barclays),
EMC (now JPMorgan Chase)
Wells Fargo (WFC)
America's Servicing Company (Wells Fargo)
Saxon Mortgage
HSBC (HBC)
Even if some of those banks have dropped LPS since then, were their records ever comprehensively fixed?
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And what about other LPS clients? Surely they've picked up more, as the tidal wave of foreclosures really grew after Lofton left LPS. Indeed, that foreclosure surge surely worsened the problems, since the time pressure on LPS employees can only have gotten worse.
If you're tempted to feel sorry for LPS's bank clients, given that they might not even have realized that their contractor was messing up their business records, don't. Banks hire LPS -- and fail to effectively oversee it -- for one simple reason: They're trying to get something for nothing. LPS has risen to market dominance primarily because it doesn't charge the banks for its work. Instead, it charges the lawyers in its network who foreclose on the the banks' mortgages.
If the banks were willing to pay to have their business records handled with accuracy and integrity, they could have avoided these problems.
For consumers, the take-away message is simple: Your checking account isn't the only bank statement you need to balance to make sure the bank is tracking your money correctly. Start balancing your mortgage statements, too.
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