A Mortgage Paper Trail Often Leads to Nowhere

... Sidney B. Brooks, the judge overseeing the case, was clearly dismayed by the bank’s performance.

In his opinion, he fumed that Wells Fargo had asked the borrowers for canceled checks as proof of payment, even though such checks were often not available. Wells Fargo’s request for canceled checks was especially troubling, the judge said, given that the bank was a proponent of the 2003 law that allowed banks to stop returning canceled checks to customers.

The only institution that could have the original checks is Wells Fargo, he concluded.

“The payments have, evidently, been lost in a black hole of the creditor’s organization or through accounting mismanagement,” the judge wrote. “This is a major lender/mortgage loan servicer where the left hand does not know what the right hand is doing — the collection department does not know what the check processing and accounting departments are doing.”

Because this is not the first time the judge has encountered problems in Wells Fargo’s operations, he is considering sanctions on the bank.

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While judges are starting to see how flawed loan servicers’ systems can be, those rushing to modify loans may not be as aware of the problems.

In the interests of fairness, modification programs should require life-of-loan histories from servicers and a justification of each entry. New loans, especially ones backed by taxpayers, are no place to bury dubious fees or extra borrower payments to cover those that were allegedly, but not actually, missed.