Last year's $25-billion national mortgage settlement required five giant banks to assign a single employee to each borrower seeking a loan modification — a personal guide who could cut through the bureaucracy.
The so-called single-point-of-contact rule sought to address the biggest complaint of borrowers trying to save their homes: Getting bounced around among random employees with conflicting answers.
Great idea. Too bad it hasn't worked much. According to a report this week from the settlement's official monitor, Joseph A. Smith Jr., a third of the 60,000 serious complaints about the banks' handling of distressed loans from last October through March involved single points of contact. The contacts were either not provided, not helpful or hard to reach.
Equally unhelpful was the oversight of the process by the national mortgage monitor, who merely confirmed the existence of a point-of-contact system at the bank, not whether it actually worked to help borrowers.
The point-of-contact failures also help perpetuate another major problem the settlement aimed to solve: dual tracking, in which banks continue to pursue foreclosures against borrowers seeking modifications.
The settlement required banks to cease foreclosure proceedings as soon as a troubled borrower's application for a modification was complete. Trouble is, determining completion was left to the banks. Critics said foreclosures often forged ahead while banks judged modification applications incomplete over meaningless or technical omissions.
Shaun Donovan, the Obama administration's secretary for Housing and Urban Development, said he expected Smith would devise new metrics — as the tests of bank performance are called — to respond to the complaints.
"We do believe the banks have to go beyond just providing a single point of contact to making sure that the single point of contact is knowledgeable, responsive and effective," Donovan said during a conference call with reporters.
Smith, the banks and an attorney general monitoring committee are already in advanced discussions about imposing new metrics, according to two people with knowledge of the discussions, one at a bank and the other at an attorney general's office. The people, who spoke on condition of anonymity because the talks are confidential, said the metrics would address single-point-of-contact and dual-tracking practices. The metrics would also address another problem area: borrowers' inability to obtain reliable statements of how much they owe.
Smith's findings echoed those in a survey released last April by the California Reinvestment Coalition, an advocacy group that interviewed 84 housing counselors and legal-aid lawyers. The group concluded that banks had continued to pursue foreclosures against borrowers who were being considered for loan modifications and that the single-point-of-contact systems had not helped.
The group continues to see "broad scale noncompliance, violations and intransigence of banks that are not helping families and communities as they should," said Kevin Stein, the coalition's associate director.
Bank of America Corp., Wells Fargo & Co., JPMorgan Chase & Co. and Citigroup Inc., all part of the settlement and all having failed at least one of Smith's tests, declined to comment on how the performance tests might be changed.
UC Irvine law professor Katherine Porter — who is monitoring the settlement for California Atty. Gen. Kamala D. Harris — said Smith's report illustrates the "serious problem" of waiting for banks to say when applications are complete.
"The path to becoming 'complete' often requires dozens of back-and-forth communications between homeowners and banks," Porter said in a report issued Thursday. "It drags on for months."
She proposed freezing foreclosure proceedings as soon as a homeowner applies for a loan modification.
A pause in a foreclosure "gives banks the incentive to make clear and reasonable document requests," she wrote. "Homeowners are able to better respond to such requests when they are not simultaneously receiving legal documents taking the next step in losing their homes to foreclosure."
Iowa Atty. Gen. Tom Miller, a leader of the negotiations that produced last year's settlement, said stopping dual tracking earlier has been under discussion with the banks.
"Because homeowners would be protected in that way, the banks would have an incentive to move things along more quickly," Miller said. "It's the kind of thing that we're talking about and thinking about and working with the banks to make this thing better."
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