June 15, 2013
Banks Slow to Clean Up the Mortgage Mess
After multiple enforcement actions, lawsuits and multibillion-dollar settlements, state and federal regulators are making sluggish progress in their efforts to prod banks to help mortgage borrowers.
But they apparently still have a lot of work to do. Just ask Craig Tate.
Like tens of thousands of homeowners trying to lower their monthly payments, Tate, 43, and his wife were thrilled when they got a letter from Bank of America in January confirming that their loan modification had been approved. The new mortgage payment on the Tate's Plano, Texas, home would save them about $250 a month.
So the couple was confused when they started getting collection letters saying they were behind on his payments. When Tate offered to resubmit the paper work, he said, the bank refused and demanded a check for $3,100 to bring his loan current and stop the foreclosure proceeding.
"My wife and I did everything they asked. We filled out all the paperwork they asked for," said Tate, the father of two and a systems administrator. "But the cancellation letter that they sent to us when they kicked us out the modification process said that we elected to leave or we declined their services, which in turn made our modification process unappealable."
A Bank of America representative said that the Tates didn't sign on the right dotted lines, and that because of those delays "the normal time frame allocated for a permanent modification had elapsed and the modification was declined."
After writing his senator, filing a complaint with the Consumer Financial Protection Board and contacting the media, Tate said he got a call this week from Bank of America offering to restart the modification process.
"This process could have been done inside of three, maybe six months—it should never have taken a year," he said.
Five years after state and federal officials set out to head off millions of home foreclosures, the Tates aren't alone in trying to navigate the often inscrutable process of getting a lender to modify their loan.
That's not what 49 attorneys general and several federal agencies were expecting when they signed the $26 billion National Mortgage Settlement over a year ago with Bank of America and four other big mortgage lenders: Wells Fargo, Citibank, JPMorgan Chase and Ally Bank.
The settlement was intended to cure a laundry list of lenders' rogue practices and procedures. They included foreclosing on borrowers who weren't in default, denying modifications for borrowers who qualified, relying on flawed account information and improperly executed documents, misapplying mortgage payments, overcharging fees, shuffling borrowers from one representative to another, foreclosing on a loan when a modification application was underway, and subjecting homeowners to endless delays and repeated requests to resubmit lost paperwork.
By all accounts, the settlement has helped many borrowers.
Since it was signed in April 2012, the five banks that agreed to the settlement have made progress in reversing the damage created by a wave of imprudent and fraudulent lending that helped sink the U.S. housing market and sparked a global financial crisis.
Iowa Attorney General Tom Miller, the lead negotiator for the states, said last month that bankers have provided some $50 billion in relief to homeowners.
Of the five banks, only Ally Bank has completed the financial relief commitments set out in the settlement, according to the monitor reviewing banks' compliance. With the largest loan portfolio among the five banks, Bank of America has provided the largest share of relief.
But critics contend that much of that relief represents credit for agreeing to short sales—in which a homeowner denied a new loan gets the bank's permission to sell their house for less than the mortgage balance. That relief also includes the write-down of a second mortgage, which doesn't necessarily stop a foreclosure.
Miller said that $11 billion of relief has gone to writing down mortgage loan balances—twice the level the states expected a year ago.
"Our main concern was principal reduction because that keeps people in their homes," Miller said. "Whatever the critics are saying, that's a huge number."
Another $1.5 billion has been targeted to fund payments of about $1,500 to about a million homeowners who suffered financial harm, said Miller.
But progress has been slower in getting banks to cut through the thicket of red tape and mistakes that have plagued homeowners trying to negotiate new loan terms and save their homes.
Next week, regulators, Congress, borrowers and their attorneys are expected to get the first report card on how well lenders are living up to their promises in that settlement, which assigned a monitor, former North Carolina Banking Commissioner Joseph Smith, to oversee the banks' compliance.
Meanwhile, lenders began foreclosure proceedings against another million homeowners during that period.
Unlike the million homeowners who entered the foreclosure pipeline in the past year, the Tates were able to save their home by dipping into savings they had been accumulating to fix their roof. That's the only thing that kept him from losing the house—after never missing a payment, he said.
"I had to pay them to keep [them] from accelerating the foreclosure proceeding," he said. "We were just lucky that we had the money."
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