Goldman Sachs’ mortgage servicing unit is currently facing a large number of complaints from consumers over its business practices. Litton Loan Servicing, Goldman Sachs’ mortgage servicing unit, is a subsidiary that collects payments on thousands of loans worth tens of billions of dollars. In December 2007, a year after the bank decided to reduce its exposure to the U.S. housing market, Goldman Sachs bought Litton, a specialist in collecting money from high-risk borrowers, whose headquarters is in Houston, Texas. The purchase gave Goldman a new way to earn fees from subprime borrowers, and provided it with a street-level view of conditions in the U.S. housing market as the financial crisis deepened. The deal also put the Wall Street bank in the abnormal position of facing hundreds of complaints from mainstream consumers, who allege that Litton unfairly charged them money.
Litton recently agreed to pay $532,000 to settle a class-action lawsuit in Los Angeles that accused it of charging late fees during a 60-day grace period on loans that it acquired from other servicers. Dan Parsons, the president of Houston’s Better Business Bureau chapter, a non-profit group that promotes responsible business practices, had this to say:
Litton saw a great opportunity to make a lot of money by collecting servicing fees on troubled loans. But when Litton takes over a loan, the borrower tends to be worse off.
The chief executive of the Goldman unit, Larry Litton, Jr., would only tell reporters that any fees resulted from his company’s regular servicing procedures. Mr. Litton added that it was “inevitable” the company would face complaints as it deals mainly with distressed borrowers.
The Better Business Bureau currently lists nearly 800 complaints in the U.S. against Litton during the past three years, which is more than have been filed against most similar-sized servicers. Consumer Affairs, a website that tracks consumer problems, said it had received 390 complaints against Litton in the past year, which is a 60% rise over the prior 12 months and more than triple the number recorded against similar-sized competitors.
Additionally, several of the complaints against Litton have come from consumers who say they entered into a “trial” mortgage modification program. Litton’s loan modification program is designed to reduce borrowers’ payments, and the program’s application states borrowers are liable for past due amounts, including unpaid interest, in the event they are denied a permanent modification. Any late fees are supposed to be waived if permanent modifications are granted. However, according to government data through April 2010, Litton’s rate for converting loans from trial to permanent modifications was 29% compared with rates of more than 80% for some competitors.
If you have any questions about Litton Loan Servicing or you have any questions about predatory lending in general, contact Bill Robertson, a lawyer in the firm’s Consumer Fraud Section. Bill handles cases involving predatory lending, and he also currently has filed several cases against Litton Loan Servicing for alleged fraud involving the servicing of its loans. You can contact Bill at 800-898-2034 or by email at Bill.Robertson@beasleyallen.com.
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