Mortgage Company v. Mortgage Company: You Lose

American Home Mortgage has filed bankruptcy and is fighting with Freddie Mac and Ginnie Mae over who gets the last jewel in AHM’s business. The asset? Maybe your loan file. And until the fight is over, your home might be at risk.

Freddie Mac and Ginnie Mae, the huge government sponsored mortgage buyers, are fighting in bankruptcy court to take away the servicing rights and the files of almost $800 million of mortgages. They have asked the bankruptcy court to force AHM to hand over the records and payments from homeowners so they can manage the mortgages. In this case, they are acting as the ultimate lenders (and investors) in the loans which AHM was originally servicing.

According to news reports, Freddie has claimed that AHM had promised to transfer servicing of these loans to Freddie so they could be managed after the bankruptcy filing — but then reneged on the deal. On the other hand, AHM wants to keep its portfolio intact if possible. The right to service those mortgages generates fees and could be sold to generate money for AHM’s creditors (some of whom might ironically be the borrowers whose loans are being serviced, in bankruptcy themselves).

So what is the big deal? Freddie and Ginnie are worried — and if AHM services your mortgage, you should be too - that AHM may not be properly crediting and paying real estate taxes and homeowner insurance from customer escrow accounts. The ultimate suspicion is that AHM could misuse house or escrow payments that should pass through their hands to others (i.e. investors like Freddie, your insurer or your local tax authority). And homeowners should also be very concerned that after so many employees were laid off, AHM or any mortgage servicer may be slow to properly credit regular payments thus running up late fees and charges — with the ultimate risk of improper foreclosure looming.

While Freddie Mac may be arguing in court that borrowers are put at risk, their primary concern isn’t your well-being. Freddie does not want the loan portfolio to decline in value with bad servicing. They’re concerned about your home being foreclosed or taken for taxes  mostly because it could make the loan less profitable. It’s not that Freddie doesn’t care about you, but this is about big money.

So what to do? Any homeowner with a mortgage needs to be keeping careful track of their payments. Make sure you can track every payment being made. Check how it is being credited (if you have on-line access to your account, make it a regular thing). Check with your insurance company to be sure the home insurance doesn’t lapse because the servicer is busy with their own problems. And make sure the taxes on your home are paid on time. If it isn’t getting done, make sure you have a paper trail proving you tried to get action from the mortgage company.

And get a lawyer fast.