If you think it will be easy to get out of your mortgage relationship, you will find yourself extremely frustrated.
Any one of the sins that Wells Fargo committed against consumers would have been bad enough.
There was the unnecessary auto insurance it forced auto loan borrowers to buy. And the data breach in which scores of the bank’s wealthiest clients woke up to the news that a lawyer for the company had handed over their personal information to an adversary. Plus accusations of unauthorized changes to people’s mortgages. And those fake accounts — numbering in seven figures — that employees created in customers’ names.
Taken together, they ought to give pause to any person who does business with Wells. But if you think it will be easy to, say, get out of your mortgage relationship, you will find yourself extremely frustrated.
Trust me, I tried. And what I found is that this is just like so many other things in our financial lives. When it comes to the big-ticket items — mortgages, student loans, 401(k) providers and the companies that control our credit data — we often don’t get to pick whom we’re doing business with or when we can exit our relationships with them. And if we can get out at all, it will mean jumping through hoops and spending lots of money.
What I wanted to do was the following: strip Wells of the right to collect my monthly mortgage check for the next 23 years and hand it to a servicing company of my choosing. Turns out I don’t have that power.
To understand why, you have to review some of the facts about the mortgage industry that you may have forgotten since the housing meltdown at the end of the last decade. There are often at least three parties involved with a loan.
First, there is the company that originates your loan, which may be a bank that has thousands of branches or a specialty company that you’ve never heard of. Then that originator may sell your mortgage into a securitized bundle that an investor can purchase. Finally, a third party may turn up on the scene — a servicer — that will actually collect your monthly payments.
It didn’t always work this way, but back when lenders kept more loans on their books they also assumed more risk. If they offered mortgages with interest rates that did not change but had to pay different interest rates over time to depositors, there could be a money-losing mismatch. Better, then, to sell mortgages to investors who actually wanted to collect checks based on a fixed rate of interest over a long period of time. Plus, the lender could take the money from the sale and originate more mortgages.
Those investors, as the eventual owners of the loan, turn out to have a lot of power here. And they care a lot about which company is servicing the mortgages they own — so much so that they may pay more or less for a basket of mortgage loans depending on whether a particular servicer is collecting the payments each month.
Given that, they are not so keen on people like me showing up and demanding permission to shop for a different servicer, which is why the Wells Fargo phone representative I spoke to this week told me that I was out of luck. Tom Goyda, a Wells Fargo spokesman, confirmed this. He also told me that the bank had never sold my loan. Even so, in the world of mortgages there is no practical way for ownership (or simply servicing rights) to be sold or transferred on a one-off basis.
But just because we can’t do it to them doesn’t mean they can’t do it to us. Servicers get tired of baskets of loans all the time for any number of reasons. At that point, they sell off the rights to collect payments. So it’s entirely possible that the servicer on my mortgage will indeed change. I just won’t get to have any say in it.
Could the industry give borrowers more power? Sure, but experts contend that we wouldn’t actually like that. “The standardization of all of this is what allows rates to be low,” said Sam Mischner, chief sales officer and head of mortgage for the online mortgage site LendingTree. “The more complexity you put into the system, the more the cost gets passed on.”
So how much more would it cost to let people like me take a walk? Because servicers make money collecting mortgage payments, they’d want something in exchange for losing the business — or merely for the possibility that it might happen frequently.
Bob Walters, president and Chief Operating Officer of Quicken Loans, estimated that mortgage rates might be as much as a quarter of a percentage point higher as a result.
At which point he tried to sell me a mortgage, since that’s his job. Indeed, the easiest way out of my relationship with Wells Fargo is through refinancing. But the best deal Walters’ salesman could offer was a loan that cost $300 per month more (albeit while ending in 20 years instead of our current 23-year countdown) and required $6,200 in closing costs.
You, however, may fare better on refinance pricing depending on your current mortgage loan. If so, keep in mind that whoever originates your next mortgage could turn back around and sell the servicing rights, which means that even if you shed Wells Fargo in a refinance, it could end up back in your life each month once more.
Didn’t add up
At any rate, the numbers don’t add up for my household, so we will stick with Wells Fargo for now. And while I believe that a consumer lock-in like this does help keep mortgage rates down, there ought to be some kind of morals clause in the loan contract. So if your servicer, say, fakes more than 1 million account openings, you can force it to pay closing costs on a refinance with a different company. I’d love to send Wells Fargo a $6,200 bill from a competitor.
It was Wells that inspired my pique, but it is not alone in the frustrating way it holds onto customers. When students borrow money from the U.S. government, they generally get what they get on the servicing front. Your employer picks your 401(k) or 403(b) administrator, and you may get stuck with high fees and lousy investment choices. And let’s not forget about Equifax and the other credit bureaus. Nobody asked to have their data collected and exposed, let alone for the hassles that resulted from the big breach in that industry.
But this is just how things are, right? You can cut the cable cord with ease and choose cellphone plans that don’t lock you in for long, if at all. But when it comes to six-figure matters like your retirement and your home loan, making an escape will be costly at best and potentially impossible.