The Next Crisis for Servicers - Dealing with Screw-Ups.

The refi boom of the past two years has been manna from heaven for residential lenders. Many a mortgage banker and broker have been originating loans hand-over-fist, raking in fees and making a darn good living. All the rumors you've been hearing about loan brokers becoming millionaires this year are probably true. The mortgage production market has never been better.

As for the mortgage servicing side of the business, well, readers of this publication know it's been a different story, a story of servicing impairment charges and writedowns, firms pulling their collective hair out trying to bring in new business while existing loans run out the back door.

In short, mortgage servicers haven't enjoyed the party. With interest rates on the rise once again, servicing professionals are starting to think the business soon will return to normalcy. Things will improve. Maybe so, but there's some dark storm clouds on the horizon for servicers and it has nothing to do with the refis and run-off. It has to do with "service."

Yes that's right, service, as in making sure the principal, interest and taxes (not to mention insurance payments) are passed onto the proper parties - promptly. And correctly.

Over the course of the past year, I've heard too many complaints from friends, neighbors and relatives who have had run-ins with their servicing companies. I hear these complaints because they know what I do for a living and they think I might be able to do a little story on their woes. (And all of these folks are "A" paper credits.)

Actually, I won't do that, but I will detail what some of these complaints are while imploring you to make sure your company is doing its job properly. Complaint No. 1: A consumer refinanced his loan and his previous mortgage servicer never paid his property insurance, resulting in no coverage. The insurance company then contacted the consumer demanding immediate payment. The consumer went to his old servicer asking why the insurance was never paid. The servicer, who had been escrowing for insurance, insisted it had been paid but could offer no proof o receipt of payment, nothing.

Complaint No. 2 and this one is a classic: Consumer goes offshore for three months, setting up means by which her mortgage will be paid in her absence. Right before she comes back, a neighbor discovers that the city is selling her real estate tax lien at public auction. The neighbor, doing some leg work for his friend, discovers the mortgage ...