More Bank Chicanery: Double Charging on Escrow Fees

 Yves Smith

As we have reported repeatedly, based on independent reports from numerous consumer attorneys and investors, servicer engage in numerous form of petty larceny which they pass off as “mistakes” when caught out. The problem with this excuse is that servicers are set up to be highly routinized environments, so any reasonably widespread error is not a mistake, but policy. However, it is remarkably difficult for borrowers to get servicer internal records, even in litigation, and even then, borrowers need to incur considerable costs (as in hire an expert witness) to dispute the accuracy of the bank’s charges.

Despite the general “missing in action” posture of bank regulators, one office has taken a tough stance of abuses, namely, the US Bankruptcy Trustee. A New York Post story by Catherine Curran reports that the Trustee is investigating double dipping in the New York City area by Wells Fargo and GMAC (now Ally). Borrower attorneys contend this practice is common at all servicers:

Many homeowners opt to pay part of their property taxes and homeowners insurance with their mortgage every month. The funds are then put into an escrow account and used to periodically pay the taxes and insurance.

But after falling behind on a few payments, troubled borrowers in Chapter 13 often find that their bank or mortgage servicer tries to collect twice on the escrow funds — once as part of the overall mortgage payment, and again as a separate “escrow shortage” charge.
The average double charge is about $2,000, said forensic accountant Jay Patterson of Full Disclosure in Arkansas, who sees escrow issues in half the cases he examines.

The Post does a quick and dirty calculation and guesstimates that the level of overcharges could easily be $180 million in 2011.

Now understand the asymmetry. $2000 is not chump change to most people, particularly people going through bankruptcy. Yet in aggregate, this scam over the last few years adds up to the billionish level over the last few years. The public has gotten so used to discussions of banks getting subsidies ranging in the trillions that a consumer scam in the upper hundred millions to something over a billion doesn’t register as being significant, even though, by any other standard, that would be a very large consumer fraud.

And that is what the banks rely on, that their malfeasance is a bit hairy to find and prove out, and that it is way too costly for the parties damaged (borrowers and investors) to prove the abuse exists and beat it back. In many ways, this is close to a perfect crime.

As Senator Everett Dirksen allegedly said (apropos defense budgets), “A billion here, a billion there, and pretty soon you are talking real money.”