More than a year after the nation's five-largest mortgage servicers signed a $26 billion legal settlement with 49 states and the federal Department of Housing and Urban Development over blatantly improper foreclosure procedures, those banks still need to do better.
That is the conclusion of the National Mortgage Settlement's monitor, former North Carolina banking commissioner Joseph A. Smith, in a report released Wednesday.
"It's better than it was. It's not as good as it needs to be, and we're going to keep at it," Smith said in an interview.
In addition to $26 billion in relief to customers wronged by so-called, "robo-signing" foreclosure document fraud and other abuses, the five lenders, Bank of America, JPMorgan Chase,CitiMortgage, ResCap (formerly Ally/GMAC) and Wells Fargo, are required to comply with 304 servicing standards.
The banks are required to use their own employees, albeit those separate from their servicing operations, to work with members of the monitor's staff to assess their performance using 29 separate metrics; these range from foreclosure sale errors to modification denials to workforce management to servicer decision timeliness.
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Four of the five banks reported failures in the latest and most comprehensive round of testing. Only ResCap showed no violations of the servicing settlement parameters. Both Bank of America and Chase reported two failures each, both having to do with response times to customers. CitiMortgage and Wells Fargo each reported one, again relating to document collection timeline compliance.
"I think the failures that are important are the failures with regard to prompt response to borrowers who are seeking to file an application for relief," said Smith. "The timeliness is important to the borrowers and to the people who advise them."
The four lenders now have a chance to correct their violations, under the settlement agreement. If they cannot or choose not to, then the monitor can seek punishment in the form of penalties up to $1 million or, in certain circumstances, $5 million. As of the monitor's last relief progress report on May 21, 2013, the servicers reported distributing $50.63 billion in direct relief to more than 620,000 homeowners, or approximately $81,000 per homeowner.
"The banks take this very seriously. They were not elated at having failures. I know they've spent a lot of money and a lot of time trying to correct their processes in a way that will serve the public better, but we're not there yet," said Smith, who was hesitant even to call the report's results "satisfying." He was also reluctant to praise any one bank over another, unwilling to declare, "who is best yet."
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In addition to the 29 servicer test results, Smith also reported receiving 59,586 consumer complaints as well as 797 from mortgage professionals between October and the end of March 2013.
The top consumer complaint was that a single point of contact was not provided or that contact was either difficult to deal with or to reach. The lack of a single servicing agent to work with each customer has led to dual-tracking; that is when one side of the bank is unaware that the other side is working on a loan modification and a foreclosure is completed while the borrower is still working through a mortgage modification.
Dual tracking violations of single point of contact and of timeline standards for loan modifications are also the crux of a lawsuit announced in May by New York State Attorney General Eric T. Schneiderman against Bank of America and Wells Fargo. Schneiderman jumped the gun on Smith's report, citing 339 violations of the National Mortgage Settlement in New York.
"Wells Fargo and Bank of America have flagrantly violated those obligations, putting hundreds of homeowners across New York at greater risk of foreclosure," Schneiderman said in a statement on May 6.
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Former Bank of America employees, in affidavits filed in a Massachusetts lawsuit last week, claimed the lender paid them bonuses to deny loan modifications, lie to customers and initiate new foreclosures. Bank of America denied the allegations.
Smith had no comment on either lawsuit, saying only, "The single biggest deficit we have in the mortgage business is a deficit of trust."