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Recent years have seen a flurry of proposals and legislation directed toward [tag]predatory mortgage lending[/tag]. The focus, however, has been almost entirely on loan originations. Aside from a few well-publicized lawsuits, predatory servicing has attracted little attention, yet in many respects it is more vicious, and the adverse consequences are more far-ranging. The loan origination market is a minefield for borrowers, to be sure, but they do have choices. Exercising intelligence and care, and with a little homework, they can find a loan provider who will treat them fairly. When the loan is closed and shifted to a servicing agent, however, the borrower’s choices disappear. |
An incentive to provide good service doesn’t exist at all for specialized servicing firms who have nothing to sell. Such firms will not get more customers by improving service quality — only higher costs — nor will they lose customers if they provide poor service. Their incentive is to generate as much revenue as possible from borrowers. It is hardly surprising that such firms figure so prominently in discussions of predatory servicing. Predatory servicing could be reduced or eliminated by legislation that restricted the sale of servicing contracts, or gave borrowers the right to change servicers. However, these would be drastic changes that would be very difficult to enact. The alternative is to identify predatory practices and make them illegal.