Mortgage payment collectors at companies including Ocwen, Bank of America Corporation and PNC Financial Services Group are agreeing to ease the terms of borrowers’ underwater mortgages, but they are increasingly demanding that homeowners promise not to insult them publicly, consumer lawyers say.
Reuters reports that in many cases, they are demanding that homeowners’ lawyers agree to the same terms. Sometimes, they even require borrowers to agree not to sue them again.
These clauses can hurt borrowers who later have problems with their mortgage collector by preventing them from complaining publicly about their difficulties or suing, lawyers said. If a collector, known as a servicer, makes an error, getting everything fixed can be a nightmare without litigation or public outcry.
A 2013 report by the National Consumer Law Center found that servicers routinely lost borrowers’ paperwork, inaccurately input information, failed to send important letters to the correct address-or sometimes just didn’t send them at all.
“If your servicer screws up, you can’t say anything about it,” said homeowner attorney Danielle Kelley in Tallahassee, Florida. “The homeowner has no defense.”
Regulators are taking note. After Reuters’ story was published on Wednesday, New York’s Superintendent of Financial Services, Benjamin Lawsky, said he is investigating Ocwen’s use of these clauses. A source familiar with Lawsky’s thinking said that he could expand the probe to other servicers.
Gag orders and bans on suing are appearing when borrowers use litigation to settle foreclosure and loan modification cases. But they are also popping up when servicers modify loan terms outside of the courts, known as “ordinary loan modifications,” according to consumer lawyers.
Bank of America doesn’t include non-disparagement clauses and releases of claims in the course of ordinary loan modifications – just in ones involving negotiated legal settlements, spokesman Rick Simon said. Waivers don’t preclude customers from filing suits on post-settlement issues, he said.
PNC’s vice president of external communications, Marcey Zwiebel, said “these clauses are part of the consideration we receive for agreeing to settle the case. This helps to ensure that the discussion is not re-opened in public after the case has been settled.”
Ocwen declined to comment, citing pending litigation.
Ocwen, Bank of America and PNC did not respond to requests for comment about Lawsky’s investigation.
Attorneys for lenders and servicers say consumer lawyers are overstating the importance of these clauses. Banks are looking to avoid being sued again for the issues resolved in the settlement, but understand they may be sued if they are responsible for a future wrong, said Martin Bryce, a partner with Ballard Spahr in Philadelphia who specializes in consumer finance and banking.
Bryce acknowledges that the language is ambiguous – under the waivers, homeowners often give up the right to sue on claims “whether existing now or to come into existence in the future.”
The non-disparagement clauses are meant to protect banks from public insults from borrowers, which the lender can often not respond to without violating privacy laws, Bryce said.
Banks and servicers have been facing bad publicity along these lines for years, and while quantifying the impact of this bad-mouthing is difficult, few banks would choose to face it.
( Courtesy Punch, Reuters & Bank of America …….. Source …….. New Africa Business News)