More Banks Could Face Scrutiny over Foreclosure Billing Practices

Federal and state regulators are paying closer attention to scrutiny of the practice of padding foreclosure expenses, putting mortgage servicers on notice that they are responsible for making sure that fees charged by attorneys and third-party vendors are reasonable and accurate.

Two large servicers have already received subpoenas relating to vendors’ billing practices and sources say that the Consumer Financial Protection Bureau is preparing to subpoena other servicers to determine if borrowers in foreclosure are being overcharged by vendors or paying for services that were not actually delivered.

The charges billed to borrowers in foreclosure range from posting a legal notice in a newspaper to preparing documents to recording a foreclosure at a county recorder’s office. The concern is that vendors are overbilling borrowers and servicers are not properly monitoring the vendors.

“The servicers will be held accountable for not having audited or not managing the expenses better,” says Tim Rood, a partner at consulting firm, The Collingwood Group. “These enforcement actions are just getting started.”

Banks typically outsource the processing of foreclosures to local attorneys, foreclosure trustees and a host of vendors, including property preservation companies.

Regulators have a strong interest in cracking down on vendors’ billing practices because most mortgages are guaranteed or insured by Fannie Mae, Freddie Mac and the Federal Housing Administration. In most cases, the borrower has defaulted on the loan and exited the home, so it’s the government agencies — and therefore, taxpayers — that are on the hook for the foreclosure costs.

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