Three of the five banks subject to the 2012 national mortgage settlement continue to have challenges adhering to the servicing rules, having failed seven compliance tests conducted during the first half of this year, Joseph A. Smith Jr., monitor of the settlement, announced today.
In testing the banks' compliance with the settlement's original 29 metrics, Smith confirmed six ‘fails’ in the first quarter and one in the second quarter.
‘The banks are all taking action to address the failures through detailed corrective action plans,’ Smith says in his report.
Smith adds that as a result of some of the problems uncovered during the testing, he recently decided to add four additional metrics to address consumer concerns relating to the loan modification process, single points of contact and billing statement accuracy.
‘The banks still have additional work to do in their efforts to fully comply with the national mortgage settlement and to regain their customers' trust; however, I am hopeful that the corrective action plans and the new metrics will result in meaningful improvement in how the servicers treat their customers,’ Smith says in his report. ‘My colleagues and I are currently working to verify four banks' consumer relief activities, and I plan to file my final set of reports to the court detailing my findings early next year. My compliance testing and reporting will continue, and I look forward to sharing my findings with the court and the public as this important process moves forward.’
The lending institutions subject to the settlement include Bank of America, Chase, Citi, ResCap (Ally) and Wells Fargo.
Some of the settlement banks were cited for failing to provide timely or adequate notifications to borrowers during the loan modification or foreclosure process, Smith says in his report. The problems primarily resulted from technological errors, he says.
In October, Smith began additional monitoring to determine whether the banks are still engaging in dual tracking, which is when they foreclose on borrowers while simultaneously considering them for modifications.
‘I have been extremely concerned to hear about ongoing dual-tracking issues,’ Smith says in the report. ‘I am hoping that the new metrics will have meaningful impact on how the servicers treat their customers.’
It should be noted, however, that although some of the banks failed on certain servicing tests, overall they passed a majority of the tests issued. Bank of America, for example, passed on 29 key metrics but failed when it was measured on loan modification document collection timelines, pre-foreclosure initiation and its handling of motions for relief from stay.
Servicers that violate the terms of the settlement face sanctions including fines of up to $1 million per infraction. What's more, Smith can take the banks back to court for further sanctions if they repeatedly fail in the same metric after an improvement plan is implemented.
The settlement banks were additionally required to provide $25 billion to consumers in the form of loan forgiveness or short sales. Smith filed a report in October saying the banks were almost finished meeting their financial obligations under the settlement.
Ally, which recently exited the mortgage business, and Wells Fargo were the two banks that didn't fail any metrics during the test period, according to Smith's report.
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