Are the Big 5 Servicers Abiding by the Terms of the National Mortgage Settlement?

That’s what we’d like to know.  In February 2012, State Attorneys General, working with the Department of Justice and HUD, announced a 49 state, $26 billion National Mortgage Settlement (NMS) with the 5 largest mortgage servicers (Ally Financial, Bank of America, Citigroup, JP Morgan Chase and Wells Fargo).  The settlement establishes nationwide servicing standards for the 5 mortgage servicers to follow. While they are far from perfect, the servicing standards are designed to better protect homeowners and prevent foreclosure process abuses.  But now over a year into the settlement we want to know—are the NMS servicing standards actually helping homeowners?

The NMS establishes a Monitor position, held by Joseph Smith, and the Office of Mortgage Settlement Oversight (OMSO) whose job it is to oversee the servicers and to identify patterns or practices in violation of the settlement.  According to the settlement, assessment of the servicers’ compliance with the servicing standards is measured using 29 predefined metrics put together by the OMSO.  Unfortunately, these metrics do not incorporate all of the settlement servicing standards. However, Monitor Smith is permitted to add 3 discretionary metrics as well as create additional metrics as needed should he and the OMSO find patterns of noncompliance “reasonably likely to cause harm to consumers.” The Monitor’s website hosts online complaint forms where homeowners and advocates of homeowners can report noncompliance by the servicers with the terms of the settlement.  By submitting these reports of noncompliance to the OMSO, consumer advocates and attorneys could demonstrate that there is a need for new metrics to conduct a more thorough and transparent review of the banks’ compliance with the settlement.  However, the specifics of the noncompliance data submitted to OMSO by homeowners and advocates are not available to the public.

On April 17th, Smith admitted in his testimony before the U.S. Senate Banking Committee that problems with servicing standards, including single points of contact, dual tracking, and the loan modification process in general, are still occurring "all too often." Smith acknowledged concerns that the banks are discriminating against poorer communities and not targeting the homeowner relief, specifically principal reductions, required under the settlement to those areas.

California consumer advocates report that mortgage servicers are violating several of the consumer protection provisions mandated in the settlement, according to a recent survey by the California Reinvestment Coalition.  One of the top problems that persist for CA homeowners is dual tracking, which occurs when a bank fails to stop the foreclosure process while borrowers are negotiating in good faith for a loan modification. Over 60% of counselors reported that Bank of America, Citibank, JPMorgan Chase and Wells Fargo still dual track “sometimes,” “often,” or “always,” even though this practice should have ended months ago under the NMS and the California Homeowner Bill of Rights (HBOR) legislation.

NACA is also investigating whether the settlement servicing standards are working on a national scale. Given the unavailability of detailed noncompliance data collected by OMSO, NACA, along with Southeastern Ohio Legal Services, designed the NACA National Mortgage Settlement Survey Database, located at www.nacamortgagedatabase.org, for attorneys from all over the country to submit instances of servicer noncompliance with the servicing standards.  Beginning May 15th, NACA will be collecting client-advocate reports of noncompliance from NACA attorneys and approved legal services attorneys into a central database repository until the completion of the settlement. The database will also track whether fair lending violations are occurring, a feature not currently tracked in complaints being submitted to the OMSO.  All responses to the survey database will be forwarded regularly to the OMSO and the Consumer Financial Protection Bureau (CFPB).  This will allow advocates to see what noncompliance is still occurring around the country on a more specific basis while reporting to OMSO and CFPB at the same time.

The NACA database will be accessible to participating advocates to support claims and defenses based on abusive servicing behavior.  In addition, if our database responses show sufficient patterns of noncompliance, we hope that the Monitor Smith and the OMSO will act accordingly to determine that additional metrics are needed to adequately assess servicers’ performance in a more transparent and fair manner for homeowners.  NACA’s data could also encourage better enforcement by the CFPB and the state attorneys general against mortgage servicing abuses.

On May 15th, NACA goes live with the NACA National Mortgage Settlement Survey Database, located at www.nacamortgagedatabase.org.