This post has been updated.
For the past 30 days, Kendra and Todd Parker have been trying to figure out what to tell their four children, fearing that they, like millions of other Americans facing foreclosure, could be tossed out of their home.
But unlike the vast majority of homeowners in their predicament, Kendra Parker says she can prove she and her husband have not missed a single mortgage payment.
The Parkers' mortgage began like any other that might have emerged from the housing boom: the neighborhood bank that originally issued their mortgage sold the loan, and it eventually landed in the hands of one of the nation's largest mortgage companies. In industry parlance, the loan was "securitized," or sliced into parts and combined with hundreds, possibly thousands of other mortgages, then sold piecemeal to investors. The complex reality of the modern mortgage system was supposed to have very little effect on the Parkers -- they would simply mail their monthly payment to a mortgage servicer, which would handle the payment on behalf of the investors holding the mortgage securities.
But, along the way, that machinery broke down. No one, the Parkers say, told them their loan had been sold. With no word from the new servicer, New Jersey-based PHH Mortgage, the Parkers sent their first payment to the original bank, which mailed the check to PHH, according to documents the Parkers provided to The Huffington Post. But that check went missing. The Parkers say that despite the fact that they made every other payment, that missing check led to foreclosure proceedings, and a wrecked Kendra Parker's credit rating.
Soon, the mortgage company informed the Parkers that they were three months past due and owed over $3,000.
As the housing bust led to the loss of millions of jobs, displaced families and eroded U.S. wealth, gaping holes in the mortgage market began to emerge, raising legal doubts about even the most mundane of transactions. Regulators and banks say that those who are current on their mortgages are almost never foreclosed on, but isolated cases remain.
Last year, court documents exposed potentially massive breakdowns of the mortgage industry. Inundated with thousands of foreclosures, mortgage servicers, some hired by banks, allegedly signed hundreds of foreclosure documents without examining them. These "robo-signer" cases spurred some major banks to temporarily halt their foreclosures nationwide. All 50 state attorneys general, federal prosecutors and a host of agencies have since launched investigations into foreclosure practices. Investors sued banks over the question of which soured mortgage securities banks should be forced to buy back.
Legal challenges to the fundamentals of the mortgage system have proliferated of late. In January, Massachusetts' Supreme Judicial Court ruled against U.S. Bancorp and Wells Fargo, affirming a lower court's ruling that invalidated two mortgage foreclosure sales. The court found that the banks, in their capacities as trustees for mortgage securities, did not prove that they actually owned the mortgages at the time of foreclosure. Legal experts say the decision is likely to lead more borrowers to sue for wrongful foreclosures.
Paul Collier, a lawyer based in Cambridge, Mass., who represented plaintiff Antonio Ibanez, said he believes wrongful foreclosures are more common than has been reported.
Collier said Ibanez's house was actually purchased by the bank a full year and a half after the bank foreclosed on it, and that he had heard of other cases in which payments went missing or were applied to the wrong accounts. The chaos, he said, stretched through the entire life of some mortgages, from the securitization process to wrongful foreclosures.
With lenders and servicers contending with everything from loan modifications to foreclosures, Collier argued, some of this chaos may have seeped into the way servicers deal with customers who have legitimate concerns.
"The utter carelessness," he said. "It would be great theater if it wasn't people's
DREAM HOME AT RISK
In the past three months, Kendra Parker and her husband, Todd, said they have spent countless hours on the phone trying to straighten things out. When that went nowhere, they sent registered letters to everyone from the CEO of PHH to their state attorney general's office. They finally secured the help of a lawyer who oversees foreclosures on behalf of the U.S. Department of Housing and Urban Development. But more than a month after they were informed of the foreclosure proceedings, nothing has changed.
Once the Parkers' first payment was missing for 90 days, their account was considered delinquent, and the mortgage company automatically stopped accepting their payments. This is how even homeowners who appear to have made every single payment find themselves threatened with foreclosure.
The Parkers' one-story brick house took about six months to build. One of Todd's college friends who built houses on the side suggested a vacant lot. The couple looked at several preexisting houses, but none of them came close to the one they eventually built, said Kendra Parker, 39. "Every fixture, every thing in the house, we picked," she said.
Last June, she signed the deed to the 1,800-square-foot house with four bedrooms, two bathrooms and enough room for four growing kids and three dogs, in a subdivision of Austin, Ark., called Shadow Creek. The Parkers secured a mortgage at Metropolitan National Bank, based in nearby Little Rock. The bank was the kind of place where you knew who you were dealing with, said Todd Parker, 40.
The Parkers signed the deed on June 30 of 2010, and were told to expect a statement. The first payment was due on Aug. 1, but the day came and went without that statement. When Kendra finally got in touch with the original lender, Metropolitan National Bank, she was told that her mortgage had been sold, and she should hold that first check until she got the first statement from her new mortgage servicer. On Aug. 27, Kendra got a letter from PHH Mortgage explaining that PHH would now be servicing their mortgage.
PHH Mortgage of Mount Laurel, N.J., is ranked eighth among America's top 10 mortgage servicers by volume of loans serviced, according to a list compiled by Mortgage Servicing News. Bank of America and Wells Fargo top that list.
In an interview with Housing Wire last year, PHH President Luke Hayden said despite being relatively small, the company could compete by being efficient. "There are opportunities for lenders who are willing to rethink traditional approaches to originating, servicing and investing mortgage products," he told Housing Wire. "We are currently embarked on a yearlong initiative to drive efficiency and take more than $100 million out of our cost structure on a run-rate basis."
The letter Kendra Parker got from PHH Mortgage on Aug. 27, which was reviewed by The Huffington Post, listed two addresses, under which the letter instructs Parker, "Please do not send your mortgage payments to this address." By September, she said, there was still no word on where they should send their payment. The Parkers got in touch with their original bank, and were advised to send the first payment as originally intended. Metropolitan National Bank, they were told, would forward the payment to the PHH, they said.
The Parkers sent a check for $1,111.86 to Metropolitan National Bank on Sept. 8. Documents from Metropolitan National Bank provided by Kendra Parker show the bank sent the check by registered mail via UPS to a "Mortgage Servicing Center" in Chicago and that it arrived on Sept. 9. Someone in the firm's mailroom would have had to have signed for it. It appears that that check went missing, and that payment was never applied.
"It looks like one payment got misplaced and that started the domino effect," said lawyer Greg Nelson, who works for law firm Michaelson, Connor & Boul. The law firm examines all foreclosures stemming from loans by lenders approved by the Federal Housing Administration. When an FHA approved loan is foreclosed on, the firm can help some homeowners to stay in their homes. After hearing the story, and seeing the proof Kendra had to offer, he too forwarded the details to PHH.
When the Parkers made their second payment, on Sept. 17, it was applied as their first payment, and from that point, they were considered in arrears. The clock started ticking.
LOST IN THE SHUFFLE
The Parkers' story is one of the more extreme battles between mortgage servicers and homeowners. There are popularly-repeated tales of foreclosure confusion: the two different law firms that, in two different short sales, sold the same Florida house to two different people. The attempt to foreclose on a house that had no mortgage on it.
As the housing bust gathered steam, homeowners have increasingly demanded that banks produce "the note," a document which proves ownership of a mortgage. These documents, homeowners contend, often went missing, which led to a burgeoning "Where's the Note?" movement.
Lenders and servicers often argued that a system of electronic registrations between banks was sufficient proof, but a federal bankruptcy judge dealt a legal blow to this argument earlier this week. MERSCorp, a company that electronically tracks half of all U.S. mortgages, has no legal right to transfer mortgages, the judge found.
Given the sheer volume of loans, and the emotions tied to large sums of money, homes, and foreclosures, the relationship between homeowners and financial services firms is bound to regularly become a contentious, whether or not the servicer actually did anything wrong.
There are few comprehensive examinations of the action of mortgage servicers, but lawyers have looked at cases in which servicer abuses have been proven. In a Texas Law Review article titled "Misbehavior and Mistake in Mortgage Servicing," Katherine Porter, a law professor at the University of Iowa who testified in front of the Congressional Oversight Panel in October, found mortgage servicing abuse could be as serious as illegal and unwarranted fees or forced insurance:
In Rawlings v. Dovenmuehle Mortgage, Inc., the servicer repeatedly asserted that homeowners had failed to make the payments even though the servicer itself had erred by applying the payments to the wrong account. After the servicer sent notices of default and imposed late fees, the homeowners spent over seven months attempting to resolve the servicer's error.
The likelihood that such practices translate into concrete harms is sharpened because consumers report serious difficulty in communicating with mortgage servicers when they perceive that an error or overcharge has occurred.
"To me, it's an injustice that we can pick out cell phone providers, we can pick our utility companies, and we pick out all this based on the service they provide us and their ability to meet our needs," Kendra Parker said. "But when it comes to our mortgage company, [mortgages] can just be sold off to anybody, we have no control over it. They can be incompetent, and service us poorly, and make all these errors, and there's nothing we can do."
Last week, the Obama administration announced plans to back a national standard for mortgage servicers, after a federal investigation into the mortgage industry reportedly found "widespread weaknesses."
FIGHTING TO KEEP THEIR HOME
After their first payment went missing, the Parkers started making payments online, and over the phone to make sure the money got through. The Parkers kept calling PHH to find out what happened to that first payment. "I cannot tell you how many times customer service said, 'We're reviewing it,'" Kendra said.
When the Parkers did get through, they said, they were told not to cancel that first check. If it was located and applied, then found to be canceled, Kendra said she was told, that could complicate things.
Kendra, who works for a company that provides security and loss-prevention investigations for retail clients, was used to following paper trails, and said she has kept extensive records of the family's case, even asking for proof that the original bank sent the first check, sending copies of the documents to PHH. The company, she said, promised to get back to them.
Todd Parker estimated he'd spent around 30 hours on the phone since the saga began. Each call, he said, meant an hour of waiting and telling, then retelling the entire story to two, three, or four people before he could get through to a supervisor who'd routinely promise to look into it and get back to him in 24 to 48 hours. The one time they did get back to him, after he left a particularly nasty message, he says, they told him they were looking into it. They'd get back to him in 24 to 48 hours.
"It's horrible, it's time wasted from my work day," said Todd Parker, who works in insurance.
On Tuesday, Jonathan McGrain, senior vice president of communications at PHH, said the firm was actively "working with the borrower."
"There's been frequent communication with the borrower," McGrain said. "We have a fairly complex set of processes around customer services and complaint resolution."
One of the documents provided by Parker, a letter from their original bank, details the notes on their account. It appears Metropolitan National Bank forwarded proof that that original payment had been sent to PHH Mortgage, and asked the Parkers for proof they'd made all the subsequent payments, which they forwarded to PHH Mortgage. Mortgage representatives at Metropolitan National Bank got through to the same supervisor that Todd and Kendra had made progress with, who promised to look into it.
Kendra also made several attempts to get through to someone who had the power to stop the foreclosure. She sent registered letters to the CEO and the vice president of customer relations at PHH Mortgage. When she realized the alleged delinquency had been reported to the credit-rating agencies, she filed complaints with three major agencies. She even wrote to her state attorney general's office and to the U.S. Department of Housing and Urban Development. At that point, Greg Nelson, the lawyer at Michaelson, Connor & Boul, got involved on her behalf.
"I realize many consumers may have a difficult time getting through the labyrinth of customer service." Nelson said, adding that he just wanted to get the Parker's file into the right hands. "That's half the battle, just getting through to the right person." Two weeks after he forwarded the documents, he was still waiting for a response.
In January, the Parkers decided to hire their own lawyer.
"It is a scandal of epic proportions in America," said the lawyer, Steve Owings. "We have a government who has been deeply ineffectual in dealing with this, people are being divested of their interest in real property by rapacious loan servicers and collection companies."
FACING DOWN FORECLOSURE
In documents the Parkers shared with The Huffington Post, it appears that they made the first three payments on the three-month-old loan, including the missing check that was not applied.
In November, 90 days after that first payment had gone missing, the PHH Mortgage refused the fourth payment, returning the check with a letter that explained the account was in arrears. "Our November statement was actually grossly inaccurate," said Kendra. "It said, basically, we were three months behind, and we're like, 'Okay, this is a three-month-old loan of which we've made all three payments, one of which you've lost, but we're definitely not three months behind.'"
"They sent our house into foreclosure on December 29," Kendra Parker said, adding that the letter, from a law firm based in West Memphis, Ark., had came as a shock. "Basically, it read like we're a bunch of deadbeats, that have just ignored all our payments."
To make sure it was clear that they were intent on paying the mortgage, and had the funds, the Parkers kept sending money for all the rejected payments in November, December, January and February, Kendra Parker said. Then, on the advice of their lawyer, they canceled that first check and resent the first payment online, sending a total of $5,558.
So the Parkers continue to wait for something to happen, in what Kendra refers to as their "holding pattern." This week, there were signs of progress. Kendra Parker received a letter from PHH stating that they had asked the credit-ratings agencies to restore her credit history. Parker was not convinced, she said -- the letter didn't explain why.
"It's heart-wrenching, we just finally finished decorating, and we just got the kids' rooms the way they want," she said. "For the past 30 days, I've had the shakes inside out. It's hard to focus on work, it's hard to focus on anything but this."
This article originally incorrectly stated the location of West Memphis.