Consumers’ Mortgage Loan Complaints and Boom and Bust in the Mortgage Market 2001-2008

Abstract

The historic boom and subsequent, on-going bust in the U.S. residential mortgage market over the past decade have been periods of revolutionary change in consumer credit access. In particular, the burgeoning subprime mortgage market intertwined with the explosive growth of nontraditional mortgages increased not only the number of households to whom mortgage credit was extended, but also the array of mortgage products available to them. Currently, record numbers of households face foreclosure, and mortgage loan delinquency rates continue to climb. Related to these disturbing trends are widespread observations that a significant number of households have not fully understood the terms of the mortgage contracts to which they committed, especially as from the peak of the subprime lending boom in late 2005 and early 2006. Research on consumers’, lenders’, and regulators’ behaviors over the ongoing turmoil in the mortgage market has addressed a range of issues, including the benefits and pitfalls of recent innovations in mortgage finance, the shifting roles of bank versus nonbank lenders and servicers, federal-level and state-level supervision of mortgage market participants, and predatory lending. One aspect of mortgage activity receiving very little systematic analysis is the nature of consumers’ complaints about both the mortgage origination and the servicing processes. In view of widespread belief about exploitative and abusive practices in the residential mortgage industry, quantitative information about borrower complaints could improve policy makers’ grasp of the nature of both problems and possible policy responses.A formidable obstacle to understanding the nature and scope of consumers’ mortgage-related complaints has been a lack of data. The first major aim of the current study is to address that shortcoming by turning to the OCC’s Customer Assistance Group (CAG) data. Since the late-1990s, the OCC, via its CAG system, has documented at the individual account level a broad range of complaints about customers’ credit issues with national banks. By aggregating individual case information across categories of mortgage loan-related complaints over time, the current analysis examines trends in consumer complaints at both the national and state levels.The second major goal of the paper is to investigate ways in which the CAG mortgage loan complaint data can add insight to our understanding of the ongoing problems plaguing the residential real estate markets. Broadly, the study’s perspective is to ask whether, and how, detailed knowledge about the nature and scope of consumers’ mortgage-related complaints confirms or contradicts commonly-held presumptions. In the absence of previous research to guide such an investigation of consumers’ mortgage-related complaints, the current study is of necessity exploratory rather than definitive in nature. Nevertheless, this analysis identifies several issues meriting further empirical research that could benefit from the incorporation of the CAG complaints data with more traditional quantitative information about mortgage market activities.