U.S. banks to face national mortgage settlement lawsuit

By Staff | May 7, 2013 | Last updated on May 7, 2013
4 min read

Attorney General Eric Schneiderman is planning to sue both the Bank of America and Wells Fargo since he says they allegedly violated the terms of the national mortgage settlement agreed to last year.

Signed in 2012, the settlement required the five largest mortgage servicing banks in the United States to improve their customer service practices by complying with new mortgage servicing rules, known as the servicing standards.

Among these are four standards dictating the timeline for banks to process mortgage modification applications. Attorney General Schneiderman’s office says Wells Fargo and Bank of America have allegedly made 339 violations of those standards since October 2012.

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In response to complaints from New York homeowners, Attorney General Schneiderman sent a letter to the parties that oversee the national mortgage settlement. He says he informed them of his intention to launch the lawsuit.

This would be the first time an Attorney General will have brought a legal enforcement claim under the auspices of the national settlement.

“The five mortgage servicers that signed the [settlement] are legally required to take specific, rigorous, and enforceable steps to protect homeowners,” says Attorney General Schneiderman. “Wells Fargo and Bank of America have flagrantly violated those obligations, putting hundreds of homeowners across New York at greater risk of foreclosure.”

He adds, “I intend to use every tool available to my office to hold these companies accountable under the terms of the National Mortgage Settlement.”

Last year, Attorney General Schneiderman joined 48 states, the Department of Justice and the five largest mortgage servicers in negotiating the settlement. The agreement includes $25 billion for 49 states, and mandated forms of consumer relief, such as mortgage modifications for at-risk homeowners.

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This includes lower-interest rates, forbearance agreements, and principal reductions.

The settlement also includes more than 300 servicing standards, which participating servicers are required to adhere to, and which are intended to make it easier for homeowners to seek loan modifications.

These standards include:

  • A prohibition against dual tracking (the practice of negotiating a loan modification with a borrower while simultaneously pursuing foreclosure);
  • A requirement that every customer requesting assistance be assigned a single point of contact; and
  • Four requirements dictating the timeline in which the servicers must respond to customers who are actively seeking loan modifications.

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“We appreciate Attorney General Schneiderman’s efforts to hold the big banks accountable to communities,” says Josh Zinner, co-director of the Neighborhood Economic Development Advocacy Project.

He adds, “The banks are systematically violating the terms of the National Mortgage Settlement, and we hope this action by the AG will push other state and federal regulators to draw a line in the sand against abusive mortgage servicing practices.”

Megan Faux, acting director of Legal Services NYC Brooklyn, agrees and says, “We have many clients who are at risk of losing their homes to foreclosure simply because Wells Fargo failed to properly review complete loan modification packages sitting in their office for months.”

“Accountability to the servicing standards is essential to ensuring homeowners have a fair opportunity to negotiate an affordable mortgage and ending the housing crisis.”

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Joyce and Alton Harden are two of the homeowners at risk, she adds. They’ve been trying to negotiate with Wells Fargo for a loan modification for the past three years, but they ended up in foreclosure.

Faux says this occurred after Mr. Harden suffered a work injury, and after their home was damaged when Hurricane Sandy hit. The Hardens reached out to MFY Legal Services, which helped them prepare a full loan modification package that was submitted to Wells Fargo in early March.

Under the mortgage settlement, the bank is required to respond to the loan modification request within 30 days. However, Faux says the Hardens didn’t hear a word back until late last week when Wells Fargo wrote to ask them to request they start the process over and resubmit a new application.

Mrs. Harden says, “My husband and I are heading into our 70s and we want to enjoy this part of our lives without a constant threat hanging over our heads. We hope Attorney General Schneiderman’s actions will finally help us settle this case and save our home.”

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The alleged 339 violations received by the Office of the Attorney General seem to show Wells Fargo and Bank of America violated four of the new servicing standards. These allegedly are:

1) Borrower must receive written acknowledgement of receipt of a loan modification application within 3 business days or receipt;

2) Servicer must notify borrower of all missing documents or deficiencies in the application within 5 business days of receipt of the borrower’s initial loan modification application;

3) Servicer must give borrower 30 days to submit missing documentation or correct a deficiency; and

4) Servicer must make a decision on a complete loan modification application within 30 days.

Read Attorney General Schneiderman’s letter detailing his intentions. It was addressed to the Monitoring Committee.

Advisor.ca staff

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.