I had the bank records showing the bill had been paid...and when I called they admitted that they had applied it to the wrong account. Every time I called, for FOUR MONTHS, they admitted it. I was getting collection calls on a daily basis for being 60 days late on my payment...went all the way up to the customer service manager...with assurances each time (at least twice/week) that the situation would be rectified.
After four months of spending several hours per week dealing with these people, I called the State Attorney General's office. They directed me to the head of Banking for our State. I made one phone call; wrote a letter; and attached the documentation. The Banking Division, in turn, wrote a letter of inquiry to Countrywide; I received a letter of apology and phone call from the office of the CEO of said mortgage company within a week.
Incidentally, they actually had the gall to scold me for getting the State of Iowa involved. They still have not corrected the problem on my credit report, or in their internal credit files...despite assurances in the letter from the CEO that they would do so. Moral of the story: contact your elected and appointed representatives when these people get out of line...that is their job.
For whatever it's worth, it IS possible to go straight to the credit bureaus, and bypass the lender to get the payment history corrected - I've helped a couple of clients of mine do that.
Then at the very least, you could refinance with a more reputable lender. They are out there.