Bankruptcy

Senate Investigates Mortgage Servicing

By Katie Porter

Last week, I testified before a subcomittee of the U.S. Senate Judiciary committee about mortgage servicing in bankruptcy. You can read the written testimony or watch a webcast. Both the Chair of the subcommittee, Senator Schumer, and the Ranking Member, Senator Sessions had some harsh words for the current state of mortgage servicing in bankruptcy. Apparently (and encouragingly, at least to me), charging people only what they owe is a bipartisan issue.

Robin Atchley, a former homeowner from Georgia, testified about how her "bankruptcy case was a tug of war with Countrywide over our house." It was a war that the Atchleys lost, deciding to throw in the towel when their son, Payden, insisted that the couple use his lunch money to help pay the mortgage payments. From her perspective, rather than giving them a fair chance to save their "dream home", the bankruptcy process gave Countrywide even more opportunities to profit. The Today show profiled the Atchleys, whose case is now the subject of a lawsuit by the U.S. Trustee's office.

In 2004, Robin and John Atchley put down $22,000 to buy their first home, moving out of a single-wide mobile home with their four children. After her sister died, Robin took some unpaid leave from her work. The family fell three months behind on their mortgage and filed bankruptcy to catch up on their house. At two points in the bankruptcy, Countrywide filed motions for relief from the bankruptcy stay to foreclose on the house. Each time, the Atchleys provided proof that the payments had been made and Countrywide withdrew its motions. But as Ms. Atchley explained the "legal papers became weapons. . . . No person with Countrywide or McCalla Raymer (Countrywide's attorneys) could ever give us clear information on what they claimed that we owed and why we owed it. It was as if all they wanted was to take our house."

Two years into their bankruptcy, the Atchleys told their children to pack everything in their bedrooms. With suitcases in hand, the family stuffed the car with their belongings and moved in with Ms. Atchley's parents. They sold the house but had to pay money out of their pocket. In the eighteen months between when Countrywide filed its claim in the bankruptcy and the sale of the house, the amount of debt had grown by $14,108--despite the Atchleys and their bankruptcy trustee making many post-bankruptcy mortgage payments. The payoff statement included a $2,793.00 charge for ?fees due?--more than 10 times the fees owed by the Atchleys at the time of their bankruptcy filing! Far from being a tool for saving their home, bankruptcy was where the Atchleys lost their home.

The Atchleys' story is important. It demonstrates the human cost of the mortgage servicing industry's misbehavior--the psychological drain and disillusionment that comes from battling a large financial company. The Atchelys didn't lose their home because they truly couldn't pay. They lost their home because they truly couldn't fight anymore.

The hearing covered a lot of substantive ground as well, including the possible incentives of mortgage servicers to overcharge consumers in financial trouble and possible solutions to the problems with bankruptcy mortgage servicing. I'll post on these topics in the next few days.

Full post as published by Credit Slips on May 15, 2008 (boomark / email).