US banks violated mortgage standards set out to help foreclosure hit consumers
20 June 2013
Four of the largest US mortgage servicers failed to comply with the new standards set out in a landmark settlement aimed at helping consumers face foreclosure, a court-appointed monitor said today.
Bank of America, Citigroup, JPMorgan Chase and Wells Fargo needed to make improvements in handling loan modifications, according to Joseph Smith, who oversaw the $25 billion settlement between banks and the US government.
One of the main complaints documented in Smith's report was that the lenders failed to provide a single point of contact for struggling borrowers.
Smith today released his first report on how the financial firms were complying with 304 new rules to protect consumers as part of the settlement to correct foreclosure abuses.
Under the deal reached in February 2012 with 49 states and federal agencies, banks were required to implement new servicing rules as also stricter oversight of foreclosure processing, provide some consumers cash payments and promise mortgage relief to help borrowers.
He tested the banks on 29 metrics to check whether the lenders were adhering to the new servicing standards. Except for Ally Financial the rest failed, according to the report.
The study supports complaints by state prosecutors that some of the nation's biggest banks had violated the terms of the $25 billion national mortgage settlement, a landmark agreement to clean up shoddy foreclosure practices.
According to the court-appointed monitor of the settlement, Bank of America, Citigroup, JPMorgan Chase and Wells Fargo had dragged their feet in processing homeowners' requests for lower monthly loan payments.
The same charge was made against the banks by Illinois attorney general Lisa Madigan and New York attorney general Eric Schneiderman, who were among the 49 state attorneys general who brokered the settlement with the top five mortgage servicers last year.
The deal was intended to help struggling homeowners and ensure they would not have to endure the same miscommunication, delays and botched paperwork that was commonplace after the housing bust. However, according to the monitor, some things had not changed.
Four out of five banks could not meet at least one the 29 metrics the monitor used to measure their compliance with the 304 servicing standards outlined in the settlement.
According to Schneiderman, the report affirmed that the pattern of violations by Wells Fargo that his office documented in New York, was harming homeowners nationwide. He had threatened to sue Wells Fargo and Bank of America in May over the violations. He added, these flagrant violations put homeowners in New York and across the nation at greater risk of foreclosure.
The most common problem found among the servicers, particularly at Citigroup, Bank of America and Wells Fargo, was failure to notify homeowners of any missing documents in their modification requests within five days of receipt, according to Smith.
Citigroup and Bank of America were also faulted for providing inaccurate information to borrowers before initiating the foreclosure process.