The nation’s biggest banks are failing to meet some of the terms of a landmark $25 billion mortgage settlement with the states, according to a report released Wednesday by the settlement’s monitor.
As part of the settlement, monitor Joseph A. Smith, Jr., regularly tests the five participating financial institutions on 29 separate measures to determine whether they are following the standards set by the settlement for their conduct with consumers. Those standards include responding to customer complaints in a timely manner, giving accurate reasons for denying loan modifications and completing foreclosure sales without error.
The settlement involves the mortgage-servicing operations of Wells Fargo, Bank of America, JP Morgan Chase, Ally Mortgage and Citigroup. Servicers handle billing and other transactions with borrowers, including modifications of mortgages that are at risk of foreclosure.
Chase is among the mortgage servicers cited in a critical audit of a settlement between banks and the states. AP Photo/Frank Franklin II
Smith’s independent audit found three failures: one each for Citi, Wells Fargo and JP Morgan Chase. Citi and Wells Fargo did not comply with timelines for quickly notifying borrowers seeking loan modifications if any documents needed fixing. JP Morgan Chase failed to quickly terminate force-placed insurance coverage when necessary.
In addition, Bank of America, Citi and JP Morgan Chase self-reported a total of five violations that Smith will investigate before his next report comes out in October. These included problems following the timelines for notifying borrowers of decisions for loan modification applications and in notifying borrowers about missing documents in connection with requests for “short sales” — deals in which the homeowner may sell for less than the amount owed on the mortgage.
“Specifically, I have heard regularly in the last year about issues with the loan modification process, single points of contact and billing and statement inaccuracies,” Smith said in a statement Wednesday.
Under the settlement, homeowners seeking modifications of mortgages handled by the five financial institutions are supposed to have an accessible and reliable single point of contact — that is, a bank representative — to communicate with about their case.
Homeowners interviewed as part of a New York World investigation into the settlement reported continual problems communicating with their servicers. As it turns out, these problems aren’t just an issue in New York.
“We continue to get complaints about the quality of that single point of contact — whether they’re responsive, whether they’re knowledgeable,” said Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development, in a conference call with four state Attorneys General involved in overseeing the settlement. “Those types of complaints are substantial.”
Last month, New York’s Attorney General Eric Schneiderman announced plans to pursue litigation against Wells Fargo and Bank of America for continually failing to comply with the servicing standards. On Wednesday, Schneiderman said the monitor’s report affirmed the patterns of violation documented by his office.
“These flagrant violations put homeowners in New York and across the nation at greater risk of foreclosure,” he said in a statement. “I intend to use every tool available to my office to hold these banks accountable under the terms of the National Mortgage Settlement.”
Not every Attorney General involved in the settlement believes court action will prove necessary, however.
“I think we’ve got the tools in this settlement and enough clout in those tools to make litigation not the most efficient way to settle any discrepancies,” Colorado Attorney General John Suthers said.
If servicers don’t correct their servicing standard failures, they can face fines of up to $5 million.
This amount is “not even a slap on this wrist” said Justin Haines, the Bronx director of Foreclosure Prevention at Legal Services NYC. Haines pointed to the multi-billion dollar profits the banks take in each year.
“I don’t think it’s enough of a deterrent for them to change their behavior,”he said of the fines.
Despite the violations reported, the Attorneys General on the call Wednesday said they were pleased with the results so far, and said they showed that the banks had improved and that homeowners were getting the help they need.
The monitor reported last month that homeowners had received more than $50.6 billion in assistance as a result of the settlement. This figured included loan modifications, short sales, and refinancing assistance.
“Let’s face it, bank foreclosures were the Wild West before this agreement, and now we have new laws and we have a sheriff,” said North Carolina Attorney General Roy Cooper.
