A group that services mortgages has been found guilty of gouging for fees. Image: Flickr / thetruthabout / CC-BY-SA
A major decision has been made in one of the first major cases addressing loan servicing. In Reno, Nev., loan servicer Compass/Silar has been found liable for $5.1 million in damages. This lawsuit was brought by mortgage investors rather than mortgage holders.
The business of loan servicing
Loan servicing is a business that often hides in the margins of the mortgage business. When a customer takes out a mortgage, the bank or mortgage company contracts out a loan servicer to actually manage that loan. Loan servicers are also contracted by investors that purchase mortgages as investments. The customer makes payments to the loan servicer, and the servicer splits the money out to pay the mortgage, the taxes and other costs of the mortgage.
Investors sue loan servicer
A group of 50 mortgage investors sued Silar/Compass, a loan servicer. Silar Advisors is a loan servicer that was combined with Compass Partners. This combined Silar/Compass loan servicer made a deal with the Federal Deposit Insurance Corporation to purchase the assets of IndyMac, which failed in 2009. The group of 50 investors sued Silar/Compass in Reno court, accusing Silar/Compass of siphoning money away from the mortgage investment and into their own improperly charged fees — all interest on the bad credit loans that the investors have put money into that they are not getting back.
Fees charged by loan servicing
The loan servicing fees charged by Silar/Compass were found by a jury to be improper. The mortgage investors say Silar/Compass almost immediately started siphoning money off of the mortgages with fees and charges that were not legitimate. Unauthorized interest, late fees and loan origination fees were charged. It is also alleged that these loan servicers may be holding up the mortgage modification process. The mortgage holder may be willing to make a change to the mortgage, but if the servicer does not agree, the mortgage modification may not happen.
