Bradley attorney Jason Bushby was quoted in Bloomberg Law on loan transfer risks for borrowers that have been hit hard by the coronavirus pandemic. With millions of mortgage borrowers skipping payments, concerns about liquidity at small servicing companies have raised alarms at the CFPB. Experts fear that an already bumpy process could get even worse for borrowers due to the volume of transfers that could result from the economic distress caused by the pandemic.
Those transfers can be plagued with paperwork problems. Companies can have filing systems that do not speak to each other and other technical issues frequently arise, said Bushby.
Technical problems can lead to real damage for homeowners, who may not receive the proper notices from their new servicers and may end up sending payments to the wrong place, he said.
“To some extent, it does not really matter how robust and tight your servicing transfer process is. A servicing transfer is just disruptive,” Bushby added.
When a servicer carries a large number of loans that have been modified to help the borrower, such as forbearance, the problem is even worse, Bushby said.
A traditional loan modification that alters the terms or principal due on a mortgage requires a great deal of paperwork, with copies given to the borrower. A forbearance is often a verbal or otherwise informal agreement that might be hard to prove if loan files have errors or are misplaced in a servicing transfer, he explained.
“The risk of these forbearance plans getting lost in the shuffle is just a lot higher than other, more permanent loss mitigation programs,” Bushby said.
The original article, “Mortgage Transfers Pose Risk for Borrowers Hit Hard by Pandemic,” first appeared in Bloomberg Law on April 28, 2020.