Four of the five largest mortgage servicers are failing to comply with
key aspects of a national settlement designed to regulate how struggling
borrowers are treated, a report released Wednesday shows.
The most egregious mistakes involved servicers taking too long to make decisions on loan modification applications and issues regarding notifications to borrowers, according to a compliance report from the independent monitor of the national settlement that was negotiated between the Obama administration, attorneys general and five companies in February 2012. As a result of the shortcomings found, some affected borrowers may receive financial compensation.
The companies did better during the second half of last year, before all 29 of the testing metrics, which measure performance on 304 mortgage servicing standards, were phased in. During the first three months of 2013, four companies self-reported potential violations.
"While it is still early in the compliance monitoring process, it is clear to me the settlement has allowed us to uncover issues with the servicers' activities that need to be rectified," Joseph A. Smith Jr., the settlement's independent monitor, said in a letter attached to his report.
Bank of America told the monitor that during 2013's first quarter, it failed to provide accurate information to homeowners in a letter that mortgage servicers are required to send to a homeowner before initiating foreclosure proceedings. It also did not pass a test that involved notifying borrowers within five days of receiving a loan application modification if there were missing documents.
JPMorgan Chase said in the first quarter it failed a test to follow the timeline for making a decision on a borrower's loan modification application and telling the customer an application had been denied. Smith said he is considering requiring Chase to provide some financial relief to affected borrowers. Chase already refunded premiums to 2,000 borrowers for an earlier error related to forced-place insurance coverage
CitiMortgage told the monitoring committee that it failed during 2012's final quarter to notify borrowers in a timely matter of missing documents in a loan modification application and because the mistake was widespread, Smith said any borrower harmed will be "appropriately compensated." CitiMortgage also reported that during the first three months of this year, it failed a test related to the letter sent to borrowers before a foreclosure action is filed against a borrower and also did not meet the requirement to notify borrowers within 30 days if there were missing documents connected with a short sale.
Wells Fargo reported that it potentially fell short in 2012's fourth quarter of a requirement to notify borrowers of missing documents in a loan modification application within five years of receiving it, according to the report.
Servicers who fail a test are required to devise a way to correct their practices. If they fail the same test within six months of seemingly correcting it, Smith can take enforcement action through the courts and seek penalties of up to $5 million.
The former Ally/GMAC passed the 11 tests administered through the end of 2012 and the monitor's office is now working with the three firms that now own those servicing rights, Ocwen Financial Corp., Green Tree Servicing and Berkshire Hathaway Inc., to continue the testing process.
In addition to the tests administered by the monitor's office and the servicers' self-reporting, the monitor said it reviewed almost 60,000 complaints filed between October and March with servicers by politicians on behalf of consumers, as well as other complaints filed by housing counselors and consumers.
By far, the greatest number of complaints were related to borrowers not having a single point of contact with a servicer. There were also complaints about inaccuracies in customer information, the loan modification process and dual-tracking, the practice whereby servicers attempt to foreclosure on a property at the same time they are working with a customer on other alternatives.
In addition to the new servicing standards, the national settlement included financial relief for homeowners. Last month, the monitor said that about 621,000 affected borrowers, including more than 25,000 in Illinois, had received loan modifications, principal writedowns, short sale approvals and other forms of assistance that totaled almost $51 billion in relief.
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