Major developments in the National Mortgage Settlement this week nearly went unnoticed as the latest report card was released on the five big banks that are currently party to the landmark $25 billion deal to correct foreclosure abuses and mortgage-modification rejections.
For one, the nation’s top housing official said more banks in coming weeks will join the original five as part of the historic settlement.
In another development, talks are underway to strengthen new rules against “dual tracking” — the practice of foreclosing on homeowners who are trying to negotiate a mortgage reduction plan.
Since the NMS was finalized a year ago, five of the biggest U.S. banks — JPMorgan Chase, Bank of America, Wells Fargo, City and Ally/GMAC — have been part of the agreement with 49 states to overhaul foreclosure-prevention efforts and compensate up to 2 million borrowers through mortgage reductions, short sales, principal forgiveness and direct checks ($1,484 each for up to 1 million claimants).
The Justice Department has approached several other banks about joining the national settlement — rather than face potential government lawsuits.
U.S. Housing Secretary Shaun Donovan did not identify which institutions could join the settlement in a conference call with reporters this past week. The press conference focused on NMS Monitor Joseph Smith’s report card on the five banks’ progress on improving servicing standards.
At least nine other institutions, including PNC Financial Services, U.S. Bancorp, SunTrust Banks and HSBC Holdings, have signed regulatory orders tied to deficient servicing standards.
Meanwhile, Iowa Attorney General Tom Miller is negotiating with the current five NMS banks to change the process of dual-tracking to allow borrowers who have met minimum requirements for getting a loan modification to avoid having to simultaneously fight foreclosure. Smith, the NMS monitor, also plans to add several additional metrics, or tests, on which to grade the banks involving single point of contact, borrower documentation and minimum loan-modification requirements.
Loopholes found in the complicated rules pertaining to dual-tracking amount to mere restrictions — not an outright prohibition of the double-dealing practice, lawyers representing homeowners are saying.
There are different rules depending on when the modification is requested and whether the application is considered finalized.
Officials are considering changing current policy by agreeing with banks to halt foreclosure proceedings when borrowers first apply for loan modifications and provide basic information.
At this time, banks halt the process of repossessing a borrower’s property only after the applications are deemed complete, a process that can take months. Foreclosure proceedings generally proceed, making it virtually impossible for homeowners to prevent the loss of their homes without hiring a lawyer.
So far the top five banks have distributed $50.6 billion in consumer relief to 620,000 homeowners, including $1.5 billion in checks that were mailed last week, Donovan said. Iowa’s AG Miller said the amount far exceeds the original estimate of $36 billion.
Smith announced this week that Bank of America, Citigroup and JPMorgan Chase were each cited in the monitor’s compliance report for multiple violations of basic servicing standards such as failing to notify loan modification applicants of missing documents and starting the foreclosure process without notifying borrowers. Wells Fargo failed one of Smith’s 29 metrics. Ally Financial (formerly GMAC), which is 74 percent owned by the government, met all the requirements.
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