A home loan servicer is the company that collects loan payments on what is likely to be the most significant asset you own: your home.  The servicer then passes the payment income stream to the owner or investor of the note.   A homeowner rarely knows the identity of the owner of their note.  The investor contracts with the servicer to handle all borrower communications, loan modifications, and foreclosure issues. The servicer is on the front line when homeowners default and face foreclosure.

Unfortunately, servicers are not only understaffed and largely incompetent, but they also tend to be predators. Most have financial incentives to foreclose on homeowners rather than work with homeowners to obtain loan modifications, or to explore other options. Perhaps most distressing is that homeowners have no right to select or change their servicer. In Missouri, a homeowner waives his or her right to control the identity of the servicer when they sign a deed of trust. A typical deed of trust contains the following provision:

 

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The provision of the deed of trust quoted above has been referred to as the “free assignability” of the mortgage.  See Adam Levitin and Tara Twomey, “Mortgage Servicing,” 28 Yale J. on Regulation 1, 83 (2011).   In other words, homeowners do not bargain over this provision.  Instead, they acquiesce to the language of the deed of trust since most are unaware of the risk of servicing problems at the time they close on their homes.

So, as your note is sold on the secondary mortgage market, you have no control over each new owner or investor’s selection of a servicer. A homeowner is notified of the new servicer’s address so the payment can be collected. But consumers have no control, influence or choice when it comes to their servicers. There is a complete lack of market discipline to promote decent servicer conduct, which results in mostly indecent servicer conduct.

As a consumer, if you are dissatisfied with the purchase of a new television, you may go back to the store and complain, or take your business to another retailer of televisions. Retailers generally respond to complaints and attempt to satisfy consumers so they can keep or expand their business. That is called market discipline. Sellers of televisions must respond to consumer complaints or face lost market share.

Where market discipline is absent, as in the home loan servicing market, the service is provided by a company less attentive to consumer interests and concerns. Servicers have been largely unregulated.  Such is the reality in the home loan servicing business. Horror stories abound. Paperwork is lost, calls are not returned, decision-makers are unknown and never available, loan modifications are inexplicably denied or done in error, payments are returned or misapplied, etc. Without market discipline, servicers lack an incentive to provide excellent customer service, and so they don’t.