Subprime Consumers Hit at Goldman
Goldman Sachs is facing a wave of complaints from consumers over the business practices of its mortgage servicing unit, a subsidiary that collects payments on hundreds of thousands of loans worth tens of billions of dollars.
Goldman bought Litton Loan Servicing – a Houston, Texas, specialist in collecting money from high-risk borrowers – in December 2007, a year after the bank decided to reduce its exposure to the US housing market.
The deal gave Goldman a new way to earn fees from subprime borrowers and provided it with a street-level view of conditions in the US housing market as the financial crisis deepened.
It also put the Wall Street bank in the unusual position of facing hundreds of complaints from mainstream consumers, who allege that Litton unfairly charged them money.
Without admitting wrongdoing, Litton agreed last year to pay $532,000 to settle a class-action lawsuit in Los Angeles, accusing it of charging late fees during a 60-day grace period on loans it acquired from other servicers.
“Litton saw a great opportunity to make a lot of money by collecting servicing fees on troubled loans,” said Dan Parsons, president of the Houston chapter of the Better Business Bureau, a non-profit group that promotes responsible business practices.
“But when Litton takes over a loan, the borrower tends to be worse off.” Larry Litton Jr, chief executive of the Goldman unit, declined to comment on specific complaints and said any fees resulted from normal procedures.
He added that it was “inevitable” Litton would face complaints as it deals mainly with distressed borrowers.
“Do I wish complaint levels were lower?” he said. “Absolutely, we take complaints very seriously.”
The Better Business Bureau lists nearly 800 complaints in the US against Litton during the past three years, more than have been filed against most similar-sized servicers.
In Houston, only three companies – Comcast, Telecheck and Continental Airlines – received more complaints, Mr Parsons said.
Consumer Affairs, a website that tracks consumer problems, said it had received 390 complaints against Litton in the past year, a 60 per cent rise over the prior 12 months, and more than triple the number logged against some similar-sized competitors.
Many complaints against Litton come from consumers who say they entered into “trial” mortgage modification programmes that reduced their payments, only to find out later that they had been denied a permanent modification and owed more money than they would have if they had not entered the programme.
Litton’s loan modification application states borrowers are liable for past due amounts, including unpaid interest, if they are denied a permanent modification. Late fees are supposed to be waived if permanent modifications are granted.
According to government data through April, Litton’s rate for converting loans from trial to permanent modifications was 29 per cent, compared with rates of more than 80 per cent for some competitors.