Banks’ Efforts to Fix Loan Servicing Insufficient, Monitor Says
By Clea Benson - Jun 19, 2013 8:00 AM ET
The largest U.S. mortgage servicers, including Citigroup Inc. (C) and Bank of America Corp.,haven’t done enough to upgrade their treatment of customers in danger of foreclosure, a court-appointed monitor said today.
The banks need to do more to improve how they handle requests for loan modifications and collect customer records, as well as provide a single point of contact for borrowers, the monitor said. The banks will have to submit plans to the monitor for improving their performance.
“It is clear to me that the servicers have more work to do, both in their efforts to comply with the national mortgage settlement, and to regain their customers’ trust,” Joseph A. Smith Jr., the settlement monitor, said in the report.
The banks were required to meet new servicing standards as part of a February 2012 settlement with the U.S. Justice Department and attorneys general from 49 states. The federal and state authorities had been probing foreclosure practices following disclosures that the banks were using faulty documents to seize homes.
Smith can take them back to court for further sanctions if they repeatedly fail in the same area after an improvement plan is implemented.
The servicers, also including Wells Fargo and Co., Ally Financial Inc. (ALLY), and JPMorgan Chase and Co., were additionally required to provide $25 billion to consumers in the form of loan forgiveness or short sales, in which lenders agree to allow homes to be sold for less than the mortgages against them.
Smith filed a preliminary estimate in March saying that the banks reported providing about twice that — $50.6 billion –for 621,712 borrowers.
For the servicing review, which includes measurements during the last two quarters of 2012 and preliminary data for the first quarter of 2013, 195 workers spent 37,900 hours testing the banks on 29 metrics, Smith said. The reviews will continue, and Smith said he’s working on additional tests to ensure that banks improve.
Reviewers found that Ally was the only bank that didn’t fail any metrics during the test period.
Citigroup, the third-biggest U.S. bank, failed in 53 percent of the cases tested to inform borrowers within the required five days that their requests for loan modifications were missing some documents, according to a filing Smith submitted to the U.S. district court. Smith described the failings, which exceeded the 5 percent maximum allowed, as “widespread.”
Smith has since approved Citigroup’s plans for fixing the causes of the violation after requesting that the lender almost double the number of employees reviewing documents to 225 and add staff overseas to expand the review process to 24 hours a day, according to the filing. He is reviewing the firm’s “remediation plan” for contacting affected borrowers, the filing shows.
Citigroup is “working to implement corrective actions as soon as possible under the direction of the monitor,” bank spokesman Mark Rodgers said in an e-mailed statement.
Wells Fargo, the largest U.S. mortgage servicer, had a 7.84 percent error rate on notifying borrowers of missing information in their loan modification packages. The monitor was still reviewing Wells Fargo’s plan to correct the issue at the time of his report. Mary Eshet, a spokeswoman for the bank, noted that Wells Fargo brought the shortcoming to the monitor’s attention.
“We remain firmly committed to meeting the standards established by the National Mortgage Settlement and we will continue to improve our services for customers,” Eshet said.
Bank of America also had trouble collecting documents for loan modifications in a timely manner.
JPMorgan Chase, the largest U.S. bank, overcharged consumers by failing to terminate forced-placed insurance coverage in a timely manner, Smith said. Banks are allowed to buy such policies for properties and pass the costs to borrowers who allow their homeowner’s insurance to lapse.
The coverage is typically more costly than regular hazard insurance and banks have about two weeks to terminate the policies and refund borrowers who obtain outside coverage and notify their lender.
While JPMorgan’s failure rate was 13.8 percent, the court monitor said it didn’t determine that the bank’s violations were widespread because its remedial plan addressed the court’s concerns.
“We meet all requirements of the national mortgage settlement,” said Mark Kornblau, a spokesman for the company. “In November, we self-identified a potential gap in metric 29 about the timing of refunds for insurance premiums. We quickly fixed the issue.” Metric 29 measured forced-placed insurance practices.
In addition to the reviews, Smith and his staff met with state attorneys general and fielded complaints from the public and from homeowner advocates.
“As a result of these meetings, I am certain that more work needs to be done to improve the way the servicers are treating their customers,” wrote Smith, a former North Carolina banking commissioner.
At least three state attorneys general have criticized bank practices in the wake of the settlement. New York Attorney General Eric Schneiderman in May said he intended to sue Bank of America and Wells Fargo for violating settlement terms related to processing applications for loan modifications. He accused the two banks of “repeated disregard” of the settlement terms, including inordinate delays in reviewing modification requests, according to a May 23 letter to Smith.
Massachusetts Attorney General Martha Coakley’s office identified more than 700 violations of servicing standards by the banks, according to a May 1 letter. Florida Attorney General Pam Bondi accused Bank of America earlier this month of “possible failure to comply fully” with settlement terms. Complaints about the bank account for nearly 40 percent of the total 293 complaints the office has reviewed and shared with Smith, she said.
To contact the reporter on this story: Clea Benson in Washington at firstname.lastname@example.org
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