Banks still to realize the full importance of untangling the mortgage mess

Despite multibillion dollars settlement issues, lawsuits, and several enforcement actions, the federal and state regulators still continue to lack in making banks realize the importance of untangling the mortgage mess (or mesh?).

How difficult is it for the general homeowner? Talk with Craig Tate.

Like millions of others trying to reduce their monthly debt payment, Tate, 23, and his family were very happy to receive a January correspondence from the Bank of America stating the approval of the modification request of their outstanding mortgage debt. The new arrangement was to save them a significant $250 a month on the mortgage payment of their Plano, Texas property. Of course, compared to the billions of dollars of total outstanding debt, $250 is a meager amount, but the value of money is relative. For Tate and his family it was big news.

However, their happiness was short-lived. Apparently, letting go $250 was big news for the bank as well. They continued to receive collection letters reminding that they are late in payment. Trying to reason and find a way out, Tate offered resubmitting the entire paper work. However, the bank was in no mood to consider. Not only that. The bank demanded $3100 to bring the loan current, preventing the foreclosure procedure.

“We followed their instruction to the letter. We again filled out all paperwork we were asked,” said Tate, a systems administrator, and a parent of two. “But the cancellation correspondence we received while being kicked out of the modification procedure stated that our modification application was unappealable because we were declining their services by electing to leave the repayment of the mortgage debt.”

A representative from the Bank of America said that the family missed the proper dotted lines, which led to these delays in the normal time window for permanent loan modification process elapsed and so the modification declined.”

Surely, this was an effort to shift the blame on the hapless homeowner. However, Craig Tate did not let the issue go. It was a matter of losing the roof overhead. He followed up with informing  his Senator in writing, filing a complaint to the CFPB (Consumer Financial Protection Board) and getting in touch with the media. After all these, Tate received a call a few days ago from the bank to restart his loan modification process.

“This process should not have taken a year. It should have been complete in three,…at the most six months, but never a year,”  said he!

It has been five years federal and state officials were assigned the responsibility to head off the menace of foreclosures for millions of homeowners. However, apparently like Tate, they are also finding it difficult to pass the inscrutable hurdles of getting the banks to consent on loan modifications.

Forty nine attorney generals and several responsible federal agencies were thinking of something different when they collaborated to implement the National Mortgage settlement (valued at $26 billion) with the Bank of America along with four more major lenders (Citibank, J.P Morgan Chase, Wells Fargo, and Ally Bank), over a year ago.

This settlement was an incentive to take care of a list of rogue lender practices and elaborate official procedures. Such practices included unreasonable foreclosing of homes from non default borrowers, denying eligible applications with modifications, deliberately presenting flawed account details and confusing documents, misapplying of payments, overcharging of fees, harassing borrower by shuffling him/her between bank representatives, announcing foreclosure when the modification process was midway, and putting applicants to seemingly endless delays with repeating requests of resubmitting lost paperwork.

The settlement began as a largely successful plan, helping many homeowners.

In fact, after the agreement on April 2012, all the banks in the settlement showed progress in mending the damage manufactured by the upsurge of fraudulent banking practices that eventually led to the collapse of the US Real Estate market, and acted as a key catalyst to the worldwide financial crisis.

Tom Miller, the Attorney General from Iowa, the lead state negotiator, confirmed last month the provision of financial relief of about $50 billion to homeowners.

The monitor reviewing compliance from the banks note that Bank of America, being the one with the biggest loan portfolio, has been able to provide the most relief. Of the five behemoths of the banking structure, only Ally Bank completed the financial relief commitments from the settlements.

However, the critics are far from happy. They say most of this relief is a eyewash. They contend that most of the relief is due to the credit to the homeowner if he agreed to short sale. In this procedure the homeowner, who cannot get any new loan, receives the permission of the bank to sell the house at an amount lesser than the outstanding mortgage debt.  The bank apparently forgets a part of the debt, but the homeowner fails to keep the house, which is the main issue. The bank’s objective seems to ensure that the homeowner does not keep the home at any cost. The relief also included any second mortgage write down, which is not enough to stop foreclosures.

However, Miller points out to the successful implementation of the settlement. According to him, $ 11 billion value of the relief attributed to the writing down of outstanding mortgage debt—about twice the rate that the states were expecting when the agreement started.

“We were mainly concerned with the reduction of principle because that can greatly help people retain their homes,” said Miller. “That is a very big number, irrespective of the contention from the critics.”

About $1.5 B was set aside to assist around a million suffering homeowners with about $ 1500, if they were eligible to it following financial harm.

However, banks continue to delay through red-tape-ism and critical mistakes that raise doubts about their professionalism. Homeowners continue to fight a desperate battle to not become homeless. It is a very difficult situation for millions of Americans.

As part of a recent development, the Congress, regulators, and borrowers with their attorneys expect to receive the first yearly report card for the performance of the lenders (specifically the five banks) are following their commitments as part of the settlement. Joseph Smith, the banking commissioner from North Carolina, has been appointed monitor to supervise the compliance.

According to an internal report from February, Smith stated that his office received an excess of 5700 complaints from desperate homeowners regarding the conduct of the banks.

“Things are turning for better. However, we are only half way there.” Smith was heard saying in a last month interview. “There are still several instances of unacceptable non compliance.”

The complaints have escalated in the last few weeks. Last month, New York Attorney General Eric Schneiderman, reacted on the situation after reviewing about 300 complaints received over a six month period. He firmly stated that he planned to take the Bank of America and Wells Fargo to court, on account of non compliance with the guidelines of transparent business. Various fraudulent practices like unnecessary processing delays, several requests for paperwork, and various other fraudulent practices still continue unabated.

“They consented to stop such conduct,” he confirmed CNBC. “They failed in it. We are thinking of a legal solution. It is this simple.”

According to a spokeswoman of the Bank of America, the bank commits a reviewing of the complaints of customer service cited by the New York Attorney General, “which we are taking very seriously and we will work fast to address the issue.”

Wells Fargo verified their “complete commitment to the guidelines of the 2012 Settlement and rge various associated standards.” They also committed to offer “transparency in redressing the procedure to ensure debt relief for homeowners.”

Attorney Generals from other states confirm frustrated borrowers calling them up with complaints.

Pam Bondi, the attorney General from Florida, last week stated that her office has been working on about 300 complaints regarding possible agreement violations. In a correspondence for the Bank of America, she noted the emergence of troubling patterns arising from possible flaws in the entire banking system that is manifested in the way Bank of America has been implementing the conditions of the settlement.

Lisa Madigan, the Attorney General from Illinois stated last month that in an internal review it was found that the banks were repeatedly asking for documents in about 45 percent of the complaints received by her staff.

“The new standards of the settlement were meant to alleviate headaches on behalf of homeowners,” said Madigan. “However, unfortunately the frustrating experiences continue for homeowners. They are receiving the runaround, with multiple requests of the same documents and unnecessary delays that are pushing them dangerously close to foreclosures.”

The lawyers and housing counselors representing homeowners say the banks are continuing with the policy of fraudulent harassment of homeowners.

“ The violations of provisions in the settlement are way more than usual,” confirmed Deborah Goldberg, working as the special project director with the NFHA (National Fair Housing Alliance). She recently testified in front of an oversight panel appointed by the Congress. “Many families are still going through a very tough time trying to salvage their homes from lenders.”

The CRC (California Reinvestment Coalition), a statewide non profits group, helping homeowners to avert foreclosure, conducted a survey among housing counselors only to find widespread violations on part of the banks.

The problems cited by them include inability to communicate with a single executive, starting foreclosures while the loan modification procedures were underway, and banks regularly failing to comply with timelines when the loan modification request was underway and a decision was necessary.

In April, Senator Barbara Boxer, from D-Calif., wrote to federal and state regulators who were looking after the settlement and urged them to take concrete enforcement actions to guarantee compliance from the banks.

“On one hand the banks find them free of the legal uncertainty, and on the other hand struggling homeowners fight hard to cope with the banking system keen to take away their homes,” she verified.

This settlement from last year is not first time regulators had sanctioned mortgage lenders for unethical treatment of borrowers. Earlier the four federal regulators of banks ordered as many as 14 mortgage firms in April 2011 to set right the error prone systems of processing documents. The regulators acknowledged that the problem has become so viral that it poses a serious peril to the ethical groundwork of mortgage activities that needed “swift and comprehensive remedies.”

This enforcement action also summoned a total review of about 4 million mortgage loans complaining the reports of misplaced documents, continuous unreasonable delays, and issuance of foreclosure notices although loan medication procedures were at place, along with other harassments of homeowners.

However, this review was cancelled in January by regulators on the pretext that it was a long and expensive process. The Federal Accountability Office released a report in April stating the unavailability of sufficient data by the review to estimate how bad the situation is for the homeowners. In fact, regulators decided to call off enforcement actions after the banks agreed to pay the homeowners, in the range of some hundred dollars for each family.

Besides curbing the serious mistreatment of homeowners, the Settlement last year was also supposed to convince lenders to accelerate the loan modification process throughout the banking structure. In many situations, the solution to the problem was simple to the extent of cutting the interest rate of the loan reflecting the deep cuts in lending rates from the Federal Reserve to salvage the collapse of the big banks.

However, the settlement fell short of its implementation. In 12 months following this agreement, lenders modified around 905,000 debts—lesser than the 950,000 of the last 12 months that ended in March, and much less than the 1.6 million loan modifications from the previous 12 months. (These numbers also reflect the modifications by lenders who did not the settlement. The settlement was drawn last year, and here we are talking about reports preceding the drawing of the settlement.)

However, during this period, lenders initiated foreclosure procedures for about 1 million households.

Unlike the several million families entering the pipeline of foreclosure last year, the Tates somehow managed to save their property thanks to the savings they have been making for fixing the roof. Even after never defaulting any payment, this extra payment was the only thing saving his house.

“I paid them to postpone the foreclosure proceedings. We were lucky to have the money.”