forbearance/insurance

bginva · Joined: 09 Oct 2008 Posts: 1

My husband and I have owned our home since 2004. We have a jumbo prime loan and have never been late on a payment. About 2 1/2 years ago our loan (which had been sold several times) was sold by Fremont Investment and Loan to Litton Loan.

We haven't had any trouble with them but have had a couple of odd experiences.

One issue is that last this summer after having Litton for a couple of years,, they sent a letter asking for proof of insurance. We have had USAA for over 20 years on our homes and have always had it since Litton acquired our home. We have had several homes over the last 25 years of our marriage, and own a place in OK that we have had for over 20 years. (Stuck because of a military move) We have never been asked this because we have always had an Escrow account.

The other odd thing they do is something that started about a year or so ago. We make our full payment online with our bank. We don't pay more or less. Every month they take $20.00 of our payment, put it in a forbearance account and then it shows as -$20.00 and is obviously applied to principle.

If it wasn't Litton Loan doing this I would still think it was odd but wouldn't worry as much. I know I sound crazy but I do not get what they are doing!

Is there anyone who could explain this to me so I don't stress over it? After reading about this company after they acquired my loan I worry about every little thing they do that seems suspicious.

Thank you!

m2c · Joined: 03 Aug 2005 Posts: 937

You questions likely relate to what you mention obliquely as, perhaps, a source of irritation – the bouncing around between “several” mortgage servicers in the short space of 2 ½ years. Sadly you may anticipate more “excursions”. Theoretically these transfers should work seamlessly but as you see, there can be “glitches” and you could end up with “interesting” companies. In a way it’s hard to feel sorry for a Johnny-come-lately complainer – you we’re “warned” in writing at time of application. You may wish to factor this disclosure more strongly when you make a decision to financing again. It’s not a guarantee but at least you know the current intention and history over the past three years.

The insurance issue is the more explainable. Somewhere along the line, the change in the mortgagee clause in your policy likely did not get updated. The mortgage holder has a legitimate interest in being covered by the policy and this should be a simple matter to correct with USAA. Whatever you do, do not ignore this. You do not want to be placed on “forced coverage” insurance – VERY expensive.

The $20 issue is a bit more confusing. "Forbearance" is not a common term in the situation you describe. The order of application is specified in your mortgage deed. Look at your copy; if you’ve discarded it, you can obtained a copy via the Internet in most jurisdictions. Normal order is escrow (in your case none), interest, and principal. It for some unknown reason $20 of interest is being waived and applied to principal, you’re so much the better. Are you following your outstanding balance relative to the amortization schedule given to you at closing to make certain the extra $20.00 is in fact being applied to your balance? Anyone who chooses to increase the probability there mortgage will bounce from hand to hand over time should periodically cross check payment application. Errors occur rarely but you don’t want the fickle finger of fate to point at you.

One far out possibility is the 360/365 calculation. You see this calculation in commercial loans sometimes but it has appeared in residential rarely. Daily interest is calculated on a 360-day basis but charged on a 365-day basis. Basically this boasts the yield on the mortgage and if the P&I is not “fudged” (no direct calculation due to starting month but 360/360 P&I can be increased by 1,0139 for approximation), the mortgage will not fully amortize. Possible Litton is taking money now to allow for full amortization but this would be in addition to your regular payment.

I tried to interpolate back to a loan amount from your payment and there is a likelihood that a refinance would fall under conforming limits now ($417,000 max versus $333,700 back in 2004). This is a potential escape hatch but current rate levels are about on a par with those in some months of 2004 so it’s unclear that this would be economically viable. You don’t want to shoot yourself in the foot just to get rid of Litton. I would at least get some numbers. DON”T BE TALKED INTO A REFI unless the numbers make sense.