"Coercive", "Unethical" Banks Hold Mortgages Hostage Over Non-Disparagement 'Gag' Order

Tyler Durden's picture

"They are without a doubt the worst organization I have ever dealt with. Keep suing them America! They deserve it!!" is the way one Bank of America client described the bank and the current actions that many of the mortgage banking business are undertaking will not improve the situation.

As Reuters reports, many of the 20 million homeowners in America are being held hostage on their mortgage modification process by an extra clause being added to the docs: they could not say or print or post anything negative about the provider, ever. These "gag orders" are becoming more frequent and Consumer law defenders are concerned, ""If your servicer screws up, you can't say anything about it... the homeowner has no defense."

The non-disparagement clauses are meant to protect banks from public insults from borrowers but the CFPB said the practice was "unfair," and has already required two servicers to cease the practice... "The banks are attempting to hold our clients hostage with a provision they know we cannot agree to... it is coercive and unethical."

 

Mortgage modifications continue...

During the past few years, loan servicers have been renegotiating mortgage terms with borrowers who have fallen behind on their payments. Since the housing crash, there have been about 1.3 million loan modifications done under the government's Home Affordable Modification Program, according to the U.S. Department of Treasury. Servicers have done an additional 5.6 million modifications in-house.

 

Companies like Ocwen say that modifying mortgages is cheaper than foreclosing. Servicers modify mortgages through some combination of changing monthly payments or interest rates, lengthening the terms of loans, and changing the principal owed, either by forgiving some of the loan or by adding on penalties and fees to make it bigger.

But, as Reuters explains, servicers and providers have added a little extra...

Gag orders and bans on suing are appearing when borrowers use litigation to settle foreclosure and loan modification cases. But they are also popping up when servicers modify loan terms outside of the courts, known as "ordinary loan modifications," according to consumer lawyers.

 

... they found that Ocwen Financial Corp, the company that collected and processed their mortgage payments, had added an extra clause: they could not say or print or post anything negative about Ocwen, ever.

 

The... experience was not unusual. Mortgage payment collectors at companies including Ocwen, Bank of America Corp and PNC Financial Services Group are agreeing to ease the terms of borrowers' underwater mortgages, but they are increasingly demanding that homeowners promise not to insult them publicly, consumer lawyers say. In many cases, they are demanding that homeowners' lawyers agree to the same terms. Sometimes, they even require borrowers to agree not to sue them again.

 

...

 

Clauses preventing future disparagement and lawsuits first started appearing after the housing crash, but they have grown more widespread in the last six months, said Ira Rheingold, executive director of the National Association of Consumer Advocates in Washington.

Which as the following law professor notes, is not 'reasonable'...

"The banks are attempting to hold our clients hostage with a provision they know we cannot agree to," said University of Notre Dame law professor Judith Fox, who runs a clinic for troubled homeowners and who has also petitioned the Indiana Bar Association over attempts to muzzle attorneys. "It is coercive and unethical."

And regulators are starting to pay attention...

On Wednesday, New York's Lawsky said he too was alarmed by servicers' using the clauses.

"Reports that Ocwen is imposing a gag rule for certain struggling homeowners - preventing them from criticizing the company - are troubling and deeply offensive," said Lawsky in an emailed statement to Reuters. "We will investigate this issue immediately."

Homeowner attorneys say they advise their clients not to sign non-disparagement agreements. But some of them do so just end the ordeal.

 

Source: Reuters - read more here