When Mortgage Borrowers Need an Ombudsman
concept developed as a protection, or a source of redress,
for individuals treated unjustly by governments,
corporations, universities and other entities whose powers
vastly exceeded theirs. Their role is to examine
complaints made about the entity involved, and to find a way
to resolve them.
be appointed by the institutions they confront, which a
common practice at universities in the US. They may be
granted the authority by government, which is common in
Europe. Or they may be self-appointed, if they have the
stature or clout required for the entity to accept them.
Little is known about this last group, which has no official
status and may be limited to scattered or even to a single
We have not had any recognized mortgage ombudsmen, although a very complicated transaction between an individual and a multi-billion dollar corporation is bound to create the kinds of conflicts that the ombudsman process was designed to handle. The following letter, edited down to the essentials, is an illustration. I have omitted the name of the lender at the writer’s request.
“My wife and I have a 6% mortgage with LENDER. In November 2012 we applied for a 10 Year ARM with LENDER . We sent in all the paper work they asked for via email and received an email back from the loan processor that they had received everything. The following month we received an email from the processor that the rate was locked at 2.25 %.
On a regular basis they requested more information via email, and we responded the same way, within 24 hours. We always received confirmation that it was received from the loan processor. This went on for many months…On June 4th, 2013 we received a letter from LENDER that the loan was 'withdrawn' due to not receiving requested information... The loan officer told us that it was 'kicked' out because it was over 120 days old.
LENDER now says they will resubmit the loan but the rate will be 3.25% rather than 2.25%, and fees will be $20,000 rather than $6,000…What should I do?”
in this case submitted a loan application at a time when
interest rates were extremely low and refinancing activity
was extremely high, which resulted in processing delays at
many lenders, including
LENDER. When a lender
has more deals to process than they can handle, they have to
set priorities, and a common one is to place applications
from their own borrowers at the end of the line. They have
less to gain from refinancing an existing customer than from
refinancing another applicant whose existing loan is held by
another lender. While
LENDER was attending
to other clients, market
prices went up and this borrower’s lock expired.
Every mortgage loan provider including
has a stated policy that if the failure to close within the
lock period is their fault, they will extend the lock period
as needed. But having that policy is one thing, a
willingness to execute it when it is costly to do so is
LENDER was not willing, and shifted the loss to the
has a legal case, but would have to go to court to obtain
redress and incur significant legal fees with no assurance
of success. That is
exactly the kind of situation that calls for an ombudsman.
My colleague Jack Pritchard and I sometimes assume the role
of ombudsman when the lender involved is one to whom we have
referred the borrower. As a source of referrals we have
enough clout with the lender that it will cooperate with our
inquiry as to what happened, and whether any redress is
called for. In the case at hand, however, we were not
involved and there was no reason that LENDER would have
To our knowledge, we are the only ones who provide an
ombudsman function in the mortgage market, which is
unfortunate. Our experience suggests that mortgage ombudsmen
not only help borrowers who get in over their heads, but the
great majority of lenders also find that the benefits
outweigh the costs.
There are two major benefits to lenders. One is to reduce
the damage to their reputation that arises from disgruntled
borrowers who blame them for
problems that are not their fault. In about half of the
cases we look at, the problem reported to us is of the
borrower’s own creation.
can also offset some of the damage done by loan officers
with poor communication skills, who don’t keep their clients
in the loop when they encounter problems because they are
afraid the client will walk on them. So they try to solve
the problem without the client’s knowledge and sometimes
mess it up. Appraisals are a frequent source of such
difficulties. Jack Pritchard has rescued many deals that
would otherwise have foundered, which the lenders involved
didn’t even know about.
can impact only a handful of mortgage loan transactions. A
future column will discuss various ways that the ombudsman
function could be expanded.