How well or poorly are the five big U.S. banks adhering to 304 new servicing standards required under the landmark $25 billion mortgage settlement?
We’re going to find out in late May or June, said Joseph A. Smith, Monitor of the National Mortgage Settlement.
No one feels the pressure more than Smith and his oversight office as consumer advocates, housing counselors and lawmakers have relayed to him a litany of complaints about the lenders, one year after they settled charges of “robo-signing” and other wrongdoing and foul-ups in foreclosure cases nationwide.
But who exactly is grading the big banks and their subsidiaries?
Each mortgage sevicer has an “internal review group” (IRG), or group of “employees and/or independent contractors and consultants” responsible for performing reviews of the servicer’s compliance with the settlement.
The IRG members are required to be separate and independent from the line of business being reviewed, Smith said.
But there is already a massive amount of skepticism built into any review labeled as “independent” — a term that leaves a bad taste after the failed Independent Foreclosure Review, that other set of enforcement actions against more than a dozen servicers that become a different $9.3 billion settlement this January.
The National Mortgage Settlement and Smith’s oversight office is well aware of the stigma from the other settlement, and it has created layers of protection in the form of prominent consultants and law firms.
“We intend to issue a report on our initial testing of that performance in May,” Smith testified at a Senate hearing this month. “I say intent only because… we’re doing a very thorough job, and if I’ve learned one thing from what I’ve heard today, it’s don’t rush to judgment. We’re going to be sure we do a thorough job before we issue a report to the court and to the public.”
These servicing standards are suppose to fix practices that led to the settlement between the banks and 49 state attorneys general and the federal government. Each servicer has been responsible for implementing and complying with the standards since October 2, 2012.
According to housing counselors who deal directly with borrowers seeking foreclosure-prevention assistance, the mortgage-settlement banks have not cleaned up their act over the past year when it comes to many consumer protections.
Among the protections being denied, they say, are providing a “single point of contact” for consumers and avoiding “dual tracking” — the practice by a mortgage servicer of pursuing foreclosure while simultaneously working with a homeowner on a mortgage reduction plan.
“My office and its associated professional firms have also reviewed the qualifications and resources of each IRG (the servicers’ “internal review groups”) to ensure it has the capacity and independence to do a credible job,” Smith said in his testimony before the Senate Committee on Banking, Housing & Urban Affairs on April 17.
The five major mortgage servicing organizations are: Bank of America, CitiMortgage, JP Morgan Chase Bank, Residential Capitaland affiliates (formerly GMAC) and Wells Fargo & Company and Wells Fargo Bank.
Smith said his oversight office’s primary consultant is BDO Consulting. which has substantial financial services industry experience, yet has “no meaningful conflict” with any of the mortgage servicers.
To assist in the review of servicer compliance with the servicing standards, Smith has also retained five separate “secondary” professional firms, including Baker Tilly Virchow Krause; BKD; Crowe Horwath; Grant Thornton; and McGladrey.
Each of the secondary firms is assigned to a specific servicer. As with BDO, each of the other five firms is free of any relationship to its assigned servicer that would undermine public confidence in its work, Smith said.
As monitor of the National Mortgage Settlement, Smith is subject to oversight by a Monitoring Committee that is composed of representatives of the U.S. Department of Housing and Urban Development, the U.S. Department of Justice, and representatives of 15 states.
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