Several days ago I wrote about a lawsuit filed in Federal Court in Dallas brought by an investor against the mortgage servicer, default servicer and Trustee behind mortgage backed investments owned by the Plaintiff. Super Future Equities, Inc. v. Wells Fargo National Bank, et al.
The lawsuit is still at the initial pleading stage and the latest amended complaint is a mere 95 pages long. I have yet to read all of it. Early in the complaint is a description of the parties to a modern-day mortgage. Even fairly sophisticated people when they think of a mortgage think of two parties: the homeowner/borrower and the mortgage company/bank. Well, to borrow from popular culture — not exactly.
Now, this lawsuit is still at the unanswered complaint stage. Certainly nothing in it has been proven. However, the description of the players in a modern-day mortgage made everything I have read and seen about the mortgage industry over the last few years make sense.
Here is the picture. There are originally at least seven parties to a mortgage, but two of them, the depository bank and the underwriter, drop out early enough that for my purposes there are five. Those five are:
- The homeowner/borrower — self-explantory;
- The mortgage servicer — whose job it is to accept and apply payments, manage the escrow account, do the accounting work, most homeowner/borrowers think the servicer owns their note and mortgage;
- The default servicer — whose job it is to service the mortgage when something goes wrong and who is supposed to try to get the loan back in good standing or foreclosed;
- The Trustee of the investment trust that actually owns the note and mortgage which has been pooled with hundreds or thousands of others and used as collateral for mortgage backed securities, usually bonds; and
- The investors who own the mortgage backed securities, usually bonds, for which the note and mortgage serve as collateral.
One point made in the complaint which is consistent with what I have seen but I had never thought to generalize it like this is that default servicing fees are higher than regular servicing fees. That makes sense, I just hadn’t thought of it before. Therefore, if there is any connection between the servicer and the default servicer (and I have a number of files in my office where the two are the same company); the servicer makes more money if the loan is in default.
In fact, if you look at that list of five parties, only two of them, the homeowner and the investor, have a real interest in the notes and mortgages upon which the mortgage backed securities are built performing as expected. The other three can all make fees off of the note and mortgage not performing as expected — or as one of my clients put it last week, “Why is it that everybody wants my money?”
I have just filed a response to a Motion for Relief from Stay in a Chapter 7 Bankruptcy that really snapped into focus for me after reading the first 30 pages or so of this Dallas-based Complaint. That Motion is set for hearing this Thursday. I am reluctant to say too much about that case in a public forum until after it has been heard, but my response goes further than just defending against the motion. I make two affirmative requests. The first is an Order prohibiting the moving party from assessing any fees against the mortgage account for having brought this motion. The second is a request that the moving party be required to pay my attorneys fees on behalf of the Debtor.
The case is set in front of WV this coming Thursday morning. I am looking forward to seeing what he does with it.