**UPDATE Meltdown? Bad Loans? Lender’s REAL dirty little secret

(1:30PM EST – promoted by Nightprowlkitty)

As most of you know who have read some of my diaries and comments, we are in Chapter 13 and in a battle with WaMu, our lender to keep our home. This has been quite the adventure and a real eye opener. When our problems with WaMu started in the fall of 2006 we were pretty sure we weren’t the only ones, fact is we aren’t, but we also had no idea and my guess is neither do you. Follow me below the fold for a sneak peek into Mortgage Lenders REAL dirty secret, the one that is more dangerous and pervasive than sub-prime loans.

Historically individuals enter into Chapter 13 Bankruptcy to protect an asset and in most cases this is asset is the family home. It is in every case the last best chance people have to hang on and get some breathing room. Understand too, for this to work you must demonstrate your ability to pay back what you owe in 3 or 5 years, this is not an easy way out for the totally insolvent.

Last year, 2007 there were 801,840 Chapter 13 filings, 2006 573,203, 2005 251,179, 2004 412,130 and this year to date they are up 27% over first quarter of 2007. I think it is safe to assume there is in excess of 2 million homes setting under protection of Chapter 13.

These homes represent low hanging fruit for lenders. But you say they are protected, how can this be. Most people in Chapter 13 are trying hard to make it work and work you must. Your current bills must be kept up to date, no new credit is allowed, very often the money available for emergencies is insufficient to cover additional attorney’s fees or a court fight or even the cost of a forensic accountant. Lenders know this and they use it to foreclose on homes from people who aren’t behind in their payments at all.

What has happened with our WaMu loan is common. COMMON which should give you all pause even if you aren’t in Chapter 13 because these tactics can and are used against any home owner.

Force Place Insurance, your lender has the right to purchase home owners insurance to protect their interest if you fail to do so. This would seem reasonable, right? Well, it might be except they can also do this if you have insurance in place. They may not even tell you this has happened, even after they have taken mortgage payments to satisfy the cost of they insurance are start foreclosure proceedings against you because technically you are behind in your mortgage.

In our case it was $3600 in insurance in WaMu’s name in the amount of $363,000, the replacement value of the house, to cover their interest in a $123,000 loan. Think the overage would go to us in the unfortunate event our home suffered a catastrophe? No, not a dime! The $240,000 overage would line the pockets of WaMu. This is enrichment they are not entitled to, but unfortunately while suspicious is not illegal as far as we can tell.

It was bad enough they got the insurance but they renewed it twice more. This is after numerous phone calls and the documentation being sent to them dozens of times. They went so far as to refund the original amount and then put it right back on because they renewed the policy. So we got a variety of bills from them and from their attorney in amounts from about $3,000 to as much as $14,678 all sent within a day or two of each other.

Inspection Fees Already held to be questionable in so much as they have been proven to be no inspection at all but a way for lenders to line their pockets. These fees can show up on anyone’s mortgage and frequently do. Not a big deal you say, well those charges are routinely used to make you short on your payment and late.

Late Fees  Your late fees are stipulated in your mortgage documents. Ours states 6% of the current payment charged out on the 16th and the first of the following month which means of you are a month late you get dinged two late fees. Ours is in the neighborhood of $78 a time. If you go past the 30 window on your payment, they can’t charge you another late fee, they can charge you interest but not a late fee. Nor can they charge you a late fee on a late fee and this happens all the time. This is where inspection fees, and other odd fees come into play, the fees make your payment short so you get hit with a late fee and then possibly another. You could be losing as much as $200 a month on your payment because of this. Remember the way late fees are charged? We have had months when late fees, not late fees and extra interest on late payments, but just late fees amounted to $357.

Payments Credited Late Lenders routinely wait an extra day or two just to make you late and get that late fee. Not easy to prove, either way. We are fortunate because all our payments are wire transferred. We know down to the minute it was sent and accepted. Interesting to us it has taken as long as 144 days to post one of those payments to our account.

Missing Payments We found an excessive amount of payment that were simply missing, put in suspense (another ploy to get late fees) or charged back as a late fee itself. This is what happened with 18 payments from the Bankruptcy Trustee, they were not properly labeled and charged out as late fees, then credited back and disappeared. Each count of incorrect labeling and crediting of those payments carries a  fine of up to $250,000  or 5 years in jail, or a combination of both. We are talking about a serious crime. Then there were payments made on our behalf by Douglas County, a particular $3055 payment that has spent its whole life at WaMu, 15 months in suspense, except for approximately $400 of it that has simply vanished.

Multiple Ledgers To date there have been 3 ledgers for our loan produced by WaMu, none of them agree. I do not think this is unusual, people trying to get their account straighten out find the same problem. When homes are sold or refinanced it is often very difficult to get the correct payout amount.

Sound overwhelming? It is, imagine what it is like for someone trying desperately to hang on to their home to find out the only way out of this is pay what the lender wants or pay for a forensic accountant to get out from under it. Either way it is going to be a thousand dollars or more, not the kind of ready money most people in Chapter 13 have. The Bankruptcy Court is on your side, but you still have to prove you don’t owe the money or your home is allowed to be chipped out of the protection of Chapter 13 and the foreclosure proceeds. A few days after that happened we got a notice from WaMu stating they were going a head with the foreclosure, subsequently we have received several more which is harassment.

Our current battle with WaMu has been going on for 5 months, which is unusual. We fought back, something they weren’t expecting. We spent the time to get the ledgers put into a readable form, to track payments and charges. That has so far saved us. Altho WaMu has managed to temporariy get the house out from under Bankruptcy protection, we have appealed and are confident it will returned. It has taken so long primarily because of continuances to gather all the documentation and make some sense of it. We were scheduled to go before the court this last Tuesday, but our attorney contact WaMu’s attorney and showed him the spread sheets and some of the problems. Their attorney has now asked for a continuance until June 16th to give them time to do an internal audit of our loan. It will be interesting to see what they find, if they are willing to make adjustments to their errors, or even correct the most glaring issues. In the past lenders have taken their chances with Bankruptcy Judges and lost.

Needless to say I am absolutely against any kind of bail out that benefits the lenders. I would rather see that money used to audit all the lenders and servicers on a yearly basis. I can update this on the 16th with the results of the hearing, but after that I will not be able to share any further actions because we are suing WaMu and that suit will be filed on the 17th. We are not interested in an out of court settlement which never allows for discussion of the case or the settlement. We are willing to take it all the way, which would be back to a Bankruptcy Judge to make the determination as to penalties and damages. We want this out in the open, talked about, investigated, the lenders punished and stopped.

Here are some links you may find interesting.

If you think it can’t happen to you.

Cases and Class Actions Here Here

It is widespread problem Here Here  Here Here Here here

What are your rights and Here  Here

****UPDATE****

I originally posted this diary May 25th. We were supposed to have our appeal heard on June 16th. Well, the 16th came and WaMu’s attorney asked for another continuance until July 22nd. Apparently they can’t find what they have lost. Obviously we are disappointed, hoping to have out house back under Chapter 13 protection and start the suit against WaMu in earnest. Both our attorneys tell us not to worry, the judge granted the continuance to give them enough rope to hang themselves. While this may be true, this is our home we are talking about and having to wait another 36 days seems cruel punishment, because protecting it is not a done deal until it is actually done.

We just got a rather detailed email from our Bankruptcy attorney and now we see why they are both so excited. It seems WaMu has admitted to “losing” or not crediting all the Douglas County payments. They are going to get fined and it opens the door to the stipulation agreement we entered into at the beginning of 2007 to repay certain of those Douglas County payments refused by WaMu. The Stipulation Agreement represents more than $6,000 WaMu was paid they didn’t have coming to them. We paid it because we wanted to keep the house and at the time there was no way to prove what we can prove now.

In the last three or so weeks we have had the opportunity to take a closer look at the books and have found 20 violations of RESPA all having to do with the handling of the force placed insurance, that problem has still eluded them.  Multiple violations of fair credit reporting. More than 100 accounting violations. 18 violations in crediting payments made by the Bankruptcy Trustee, in fact WaMu refunded the last such payment to us in a check. This is just the last 18 months and we have another 18 months or more to go. Our mortgage account is fast becoming the poster child for mortgage servicing screw ups, if it is illegal and can be done, it has been done to us dozens of times.

************Update to the update*************  We are now at July 24th, 7 months into this and having been to court on the 21 to find WaMu needs another continuance for three to four weeks. My believe is they are hoping when the accounting comes we haven’t saved our back house payments they won’t take. How wrong they are. Either way they aren’t going to get away from the fines just on this go round.

We meet with both our attorneys next week with the idea of hopefully taking the offensive. What I would like to do if possible and since we already have a judge is file the big suit now, not wait while they stall indefinitely. This is the suit that has the potential to cost them millions in fines plus significant damages to us for what they have done. I want them to know we aren’t playing here and stalling is only going to make it worse for them in the long run.

I have read that WaMu has between 2 and 2.5 million mortgages they service. They are the 3rd largest mortgage lender and 9th largest credit card issuer. They have millions of bank account holders. Never think poor bookkeeping doesn’t pay because that “found” money goes right to the bottom line. Just sticking their various customers $1 a month they could easily be looking at a billion dollars a year in fraud rewards. All that and they have the temerity to not just ask for a bail out, but expect one! In case you didn’t know, those mortgages were made and bundled in investments, so all those folks crying about losing money on bad loans have in many cases already gotten their money back and stuck investors.

Most accounts aren’t as rife with violations as ours. But certainly mistakes pay for them and there is a pattern of this kind of fraud extending thru all their banking services. We have been in contact with Senator Dodd’s office and they are over joyed to be getting the information to use after the court case is settled. One of the reasons we aren’t interested in an out of court settlement is this needs to go before Congress. My personal belief is they need to be prosecuted under RICO. Their officers and employees who have been a party to this need to be jailed, their person wealth seized and fined heavily. Draconian? You bet, give them what they have given their customers.