After numerous complaints to state and federal agencies on behalf of his customers, Dave Lockwood, a Houston REALTOR®, is hoping that an agent/consumer groundswell will take up the cause of hidden mortgage servicer fees.

When a consumer initiates a loan, it is assumed that the loan will remain with the bank or lending institution with which it was originated. But the truth is that is seldom the case. In addition to the interest paid and processing fees that will make up the true cost of the loan, the APR, the consumer will also, in most cases, pay extra fees for the privilege of having an unwanted third party, a mortgage servicer, involved in the loan. Also, if the loan is originated through a mortgage broker, many times the additional servicing fees charged by the lending institution which will buy the loan are undisclosed or underestimated.

How does a loan servicer become involved? Typically the broker or lending institution will sell the loan to a third party who will then service the loan or turn it over to a loan servicing company. Many large institutions such as NationsBank have large, extremely profitable loan servicing centers.

The problem is that most consumers are unaware of the existence of a mortgage servicer until it is too late - at closing. That is when they are hit with numerous "servicing fees" over and above the "processing" fees they paid at origination. If they do business through a mortgage broker, these fees are paid on the front end as well as the back end of the loan.

With full power to do as they please, the mortgage servicer is unregulated in some states, which means they can charge anything they want for their "services."

"Consumers with mortgages are captive 'customers' and almost all the mortgage service industry is getting away with hitting them with extra charges and hidden fees," accuses Lockwood. "It is so rampant that it would probably be fruitless to look for one which did not engage in these practices. Of course, if a consumer has a problem and goes to HUD or some other Federal agency, the consumer better not hold his/her breath, because it'll be months and months and months before any action possible action is taken."

"This whole thing with consumer protection as it applies to the mortgage servicing business is a farce. All the consumer needs to do is to ask his or her Congressman or Senator how many RESPA violations have been thoroughly investigated and how many penalties and/or fines have been assessed against the mortgage servicing industry. The answer is the smallest number possible," he says bitterly.

What has Lockwood so hot under the collar? He like other agents are sick of closings in which the buyer or seller blows up over additional fees that have been added to the closing or payoff, respectively, of their loan. Borrowers are seldom told their loan will be sold, which lending institutions have every right to do, but the consumer has no choice and no control over what fees will be charged.

" I have complained to many, many State and Federal agencies, and the typical answer I get is that, '...we have no authority to act... blah blah blah.....' If it isn't the government's job, whose is it?" asks Lockwood.

"This practice of double fees has a lot of REALTORS upset because these fees are sometimes inadequately disclosed at application. That would be totally based on the quality of the loan officer and how thorough they are about their good faith estimates," says Lisa Kassuba, branch manager of Sterling Capital Mortgage in Houston. "When the mortgage company discloses their fees, the consumer has no control over whether their loan is sold one time or fifteen times. As far as additional fees being assessed, I was unaware that goes on. I know that sometimes when a broker originates a loan, and the loan is not closing in their name, but in the investor's name, then there are a lot of additional fees that are often not quoted to the consumer."

Leslie Pettijohn, Commissioner of the Office of Consumer Credit for the State of Texas, says she is not only aware of the practice, but that it has actually happened to her in a real estate transaction. "There is no regulatory agency regarding mortgage servicing practices on first mortgages. I would suggest that any consumer be watchful."

"Consumers should be provided with a disclosure at closing when they obtain a new mortgage as to whether the mortgage cocmpany is likely to sell their mortgage as part of a portfolio. And that could be helpful. I think it is appropriate that consumers are advised of all fees that they will be expected to pay."

"I would be interested in tracking the fees. Most additional pay-off quotes should be no more between $5 and $20. I would certainly like to see them if they are higher than that."

Pettijohn suggests routing complaints about servicing fees to the examiner in charge of consumer assistance, Richard Woodward, email Richard_Woodward@OCCC.state.tx.us."We routinely try to help consumers," she adds.

REALTORS® can do their part by steering their customers to reputable institutions who disclose all fees up front as well as those that will service their own loans at no additional costs.

What do you think? Are you sick of watching your buyer or seller blow up at closing? What would you like to do about it? Write your opinion to .

Published: August 19, 1998

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