Mortgage monitor: Banks not yet complying with major settlement

A neighbor peeks into an unoccupied, foreclosed home in East Los Angeles.
(Mel Melcon / Los Angeles Times)

The nation’s biggest banks haven’t yet kept all the pledges they made 16 months ago to settle state and federal investigations into abuses of troubled homeowners and the foreclosure process, the national monitor for the settlement reported.

The banks have said they are fulfilling their obligation to provide about $25 billion in aid to distressed borrowers.


But monitor Joseph A. Smith, in a report Wednesday, said the banks have also reported failures to fully comply with their promised reforms in processing loan-modification requests, evictions and home seizures. The problems, he said, echo complaints from state officials and economic-justice groups across the country.

Smith said the reformed customer-service standards are more important than the payments also required by the national mortgage settlement.

“I think the banks have made some progress,” he said in an interview. “But the continuation of complaints means there is more work for them to do. It’s a good start -- but just that, a start.”

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Among the problem issues are providing accurate information about missing documents to borrowers seeking loan modifications, and providing a single knowledgeable person that the borrowers can contact as they work to hang on to their homes.

The banks said they are correcting the problems, which were detected in the second half of 2012 and the first quarter of this year. Not until the latest quarter were all 29 required performance tests up and running.

If the problems continue, Smith and a monitoring committee of state and local officials can take the banks to court and seek financial penalties against them.

Smith, a former North Carolina banking commissioner, heads the Office of Mortgage Settlement Oversight, set up to monitor the banks’ compliance with the landmark settlement reached in February 2012. His report was filed in a Washington, D.C., federal court overseeing the agreement.

The five largest mortgage servicers at the time signed the settlement. They are Bank of America Corp., Wells Fargo & Co., JPMorgan Chase & Co., Citigroup Inc., and the so-called ResCap parties, formerly operating as GMAC Mortgage and Ally Financial.

Only the ResCap parties, which have sold off their mortgage customer-service business to Ocwen Financial Corp., Green Tree Servicing and Berkshire Hathaway Inc., had no failures serious enough to merit mention.

Smith’s report included instances of failures in five of the 29 tests required by the national mortgage settlement, which are performed by the banks’ own special review groups with oversight by legal and accounting firms working for Smith.

The most common failure involved a requirement to notify borrowers of any missing documents within five days of receiving an application for a loan modification. Smith reported failures in this category by Bank of America, Wells Fargo and Citi, with the errors deemed widespread at Citi during the fourth quarter last year.

Bank of America and Citi also failed a requirement to include accurate information in letters sent to borrowers before foreclosure.

Citi failed a requirement that borrowers be notified in writing of missing documents within 30 days of a request for a short sale.

Chase failed a requirement to remove bank-imposed property insurance within 15 days of receiving evidence that borrowers had their own coverage. It also failed a measure of compliance with timelines for deciding on loan-modification requests and for notifying customers of a denial.

Smith said Chase detected the insurance problem and voluntarily refunded premiums to more than 2,000 borrowers. The bank said it now believes that it meets all requirements of the settlement, although Smith said he is still reviewing whether the loan-modification timeline problems have been fixed.

Citi said it is now notifying borrowers of missing documents in loan modification requests to Smith’s satisfaction. “In other areas,” it said in a statement, “we are currently working to implement corrective actions as soon as possible under the direction of the Monitor.”

Bank of America said it believes that it has resolved one of the problems identified by Smith “and will soon return to compliance in the other.” Smith said he hadn’t yet verified the bank’s statements.

Wells Fargo said it is confident it now meets all 29 test standards, although Smith has yet to confirm that it has fixed the problems involving notifying borrowers of missing documents in request for loan modifications.

Smith’s reports are posted on the Office of Mortgage Settlement Oversight webpage at


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