Slow Improvements in Sorting Mortgage Confusions

With the help of federal regulations in the form of law enforcements and billions of dollars spent in settlement of lawsuits, it has been possible to make some improvements in the way how banks deal with borrowers; however, there is still a lot of scope for streaming

Example may be cited of Craig Tate and many other property owners who wish to have their monthly mortgage payments lowered. Mr. Tate had received a positive reply from the Bank of America regarding lowering of payments which would be a saving of $250 per month.

However, confusion arose when he started receiving reminders from the bank stating that he was a defaulter and in spite of his requests of resubmitting and reviewing the papers, the bank asked him to pay $3,100 upfront to update his loan and stop any foreclosure action on the loan.

Even after abiding by all the terms of the bank. The borrower received a letter cancelling the modification process that demanded him to either leave or reject the bank services which made the modification process misfit for appeal any further.

According to the bank sources, there were delays due to Tate’s signature on the wrong places which delayed the whole modification application process and eventually it was declined.

It was only after he filed a complaint with the Consumer Financial Protection Board and the media also came to know about the incident, the Bank of America offered to again look into the modification procedure. If only the bank would act sensibly, this process could be completed in less than six months.

Now, that it has been over five years now that the state and federal regulators are fighting for a large number of home foreclosure cases, there are many people like the Tates who do not find themselves alone in the often incomprehensible process of loan modification.

About a year ago, there has been a National Mortgage Settlement of 26 billion dollar between Bank of America along with four other big lenders such as Ally bank, JP Morgan Chase, Citibank, and Wells Fargo, and many federal agencies with forty nine attorney generals.

The prime objective of the settlement was to correct some of the faulty procedures practiced by certain mortgage lenders and aimed at resolving the many pending issues along with cases of foreclosure not based on valid grounds. Borrowers were found to be rejected even if they were defaulters, they were denied modifications even if they fairly qualified, improper account handling and flawed processing of borrower documents, miscalculating and applying the same on borrowers, charging of more fees, foreclosure in the middle of a modification process and pushing borrowers from one advisor to another, requesting to resubmit documents repeatedly, thus creating much confusion leading to endless delays and sufferings.

So, it is very important to mention the benefits brought by the settlement.

It has been over a year since the settlement was made in April 2012 and since then; all five banks involved in the said settlement have tried to correct the damages to a great extent which in turn has helped revive the U.S. home mortgage market that had almost led to a financial crisis in the global market.

According to Tom Miller, Attorney general from Iowa who headed the settlement suit, the banks had to pay about $50 billion as compensation for their fraudulent deeds.

After reviewing the bank’s compliance it can be said that speaking of the share of relief, Bank of America has paid the highest, whereas, only Ally Bank is able to fully cover the relief commitments mentioned in the settlement.

However, according to critics, most of that relief is for pushing the homeowner for short selling, where a homeowner in the event of decline of a new loan will get permission from the bank to sell their property at a price less than the actual mortgage balance. It also may happen that  a homeowner’s second mortgage will be written down increasing the chances of foreclosure.

According to Mr. Miller, the major concern was to reduce the principal amount. Also, out of the relief fund, $11 billion is used up for mortgage loan balance writing down, which is double the amount estimated last year and another $1.5 billion have been used to cover the financial losses suffered by homeowners at the rate of $1,500 each.

The Corrective Measures for Loan Modification

The implementation of corrective measures have been really slow paced since the banks have to make amends to the chain of mistakes they have made which has scared the borrowers looking for new mortgages and saving their properties.

A screening of the lender’s performances are to be reviewed by borrowers, regulators, the Congress and the borrower’s attorneys next week in order to determine whether the lenders are conforming to the commitments in the settlement which is to be monitored by Joseph Smith, former Commissioner for North Carolina Banking compliance.

According to Smith, more than 5,700 complaints related to loan servicing have been received by his office. These loans were processed by one of the five banks involved in the settlement, which clearly shows that even if there are improvements, there are too many cases that prove situation is not fully under control.

According to General Eric Schneiderman who is a New York Attorney, after reviewing more than 300 complaints in the past six months, two of the banks named Wells Fargo and Bank of America need to be taken to court because they were found not to comply with the legal commitments they agreed to in order to sort out issues like processing delays, losing paperwork and continually requesting for resubmission of documents etc.

As told to CNBC, Eric Schneiderman added that since the banks agrred to stop the misconduct but they did not eventually, they need to be taken to the court of law.

However, according to a statement from Bank of America, the bank is looking into the matter to review and sort the complaints related to customer service that have been highlighted by Schneiderman.

The other bank, Wells Fargo also commented that they are more than willing to conform to the regulations and standards outlined by the National Mortgage Settlement and will take up the issue seriously to provide transparent processes for the borrowers.

Some other attorneys continue to receive complaints from angry customers.

According to Attorney General Pam Bondi from Florida, her office already has 300 complaints of possible misconduct under review. In her letter to Bank of America, she has showed concerns in the way the bank is implementing the corrective measures and its standards cited by the settlement.

Illinois Attorney General Lisa Madigan found that about 45% of the complaints received by her office is related to repeated request for the same documents by the banks.

She also added that though the settlement standards were supposed to eliminate most of the problems, the same complaints are coming up continuously. Asking for the same information thereby delaying the process will again put the application vulnerable to foreclosure.

Attorneys and housing counselors have a lot to report in terms of practices the banks initially agreed to correct but eventually have not.

As per Deborah Goldberg, project director of National Fair Housing Alliance, there are a lot many violation complaints coming everyday and homeowners are having a very difficult time to deal with their lenders.

The nonprofit organization working with homeowners to avoid foreclosure named the California Reinvestment Coalition, in a survey done in April found a lot of violations to the settlement.

They found that most of the foreclosures happened in the time when borrowers were negotiating a modification of their loan and the banks could not complete the process within the agreed timeframes or at least come up with a decision.

Sen. Barbara Boxer, D-Calif, in the month of April wrote to the federal regulators to take up matters more seriously and make strong decisions.

She also added that the present system has though taken some pressure off the banks; it has put the homeowners at more risks of losing their homes to foreclosures.

This is not the first time that the banks are under the scanner of the regulators. In 2011 also, four federal regulators of bank had ordered 14 lender firms to implement corrective measures for their procedures. It was found that the problems were severe to the extent that they could cause potential harm to the nationwide mortgage activities if not taken up immediately.

Of the many complaints, the review of more than 4 million loan applications found that the most common issues were lost documents leading to delays, and issue of foreclosure notice even in the case of an ongoing trouble free loan.

Due to certain reasons, the review process was finally called off in January due to time and cost involved. A report from Government Accountability Office in April however stated that the review failed to correctly determine the extent of the harm caused to homeowners. Later, with lenders agreeing to pay compensation to borrowers, the enforcement action was finally settled.

Apart from providing solutions to the mistreatment the borrowers have been receiving, the settlement was aimed at speeding up the process of loan modification across the nation. In most of the cases, the simplest solution was to reduce the loan interest rate in order to show the cuts in rates designed by the Federal Reserve.

If reviewed on that basis the settlement has not been very effective. In a year after the settlement, lenders could only modify 905,000 loans, which according to industry data is lower than 950,000 in the last one year in March and about 1.6 loan modifications done in the previous one year.

In the meantime, lenders had started foreclosure on many other homeowners.

Millions of borrowers were pushed into foreclosure process out of which the Tates were out of the lucky few who were finally able to save their home by resorting to the savings they had. This was the reward after being up to date with mortgage payments.

It was just for the money they had that prevented the foreclosure procedure from speeding up, eventually saving their home.

Kevin Hartmann