Solutions For Mortgage Woes Rather Slow

Mortgage borrowers looking for respite from banks after federal and state regulators have finally been moved into action by a number of lawsuits and several settlement deals worth billions of dollars, might get some results. But is enough being done?

Craig Tate, from Plano Texas, seems to be one of the beneficiaries as his loan modification applications was approved by the Bank Of America and it meant savings of about $250 every month. But it wasn’t to be the case because he and his wife were notified that they were behind payments. To his utter shock he was told that he had to pay $3100 to stop any foreclosure proceedings.

“We did everything we were asked to,” says the systems administrator, who is a father of two. But according to him, the cancellation letter sent to them mentioned that it was they who were declining the offer given to them. Thus their modification process was made unappealable.

The bank has its own version and according to their representative since the dotted line wasn’t signed by the Tates, it caused delays. It apparently meant that the time frame given for modification process was over and hence turned down.

Only after Tate took matters to the media, filed a complaint with the Consumer Financial Protection Board and even wrote to the senator, which made the right noises, the bank agreed to begin the process all over again. But he did pay the price for the delay as the process took about a year in all.

These woes are common with many other home owners in the country. Was that the outcome 49 attorney generals and federal agencies were hoping for when they signed the $26 National Mortgage Settlement with some of the biggest banks in the country?

Clearly all the good intentions to stop bad lender practises including foreclosure when borrowers are not in default to overcharging fees, wrong application of mortgage payments to foreclosing a loan when a modification is underway, were behind the settlement.

It has had some impact because the five major banks involved, Bank Of America, Citibank, JP Morgan Chase, Ally Bank and Wells Fargo have managed to do some damage control on bad lending practises that led to the collapse of the housing market in the country. While Ally Bank has completed all the financial relief commitments that were mentioned in the settlement, Bank Of America has given highest relief on the back of the fact that it has the largest loan portfolio.

But there are those who believe that this relief doesn’t necessarily solve the problem for many borrowers because it has a write-down of a second mortgage. And that doesn’t mean a foreclosure will not be brought against a borrower.

According to Tom Miller, Iowa Attorney General, who played a huge role in negotiating on the behalf of the states recent said that banks had provided $50 billion relief to home owners. But around $11 billion of it has been used for writing down mortgage loan balances. “The main concern was principal reduction,” says Miller. He adds that around $1.5 billion is hoped to be used as fund payment for around million home owners who had to deal with financial harm.

However due to the processes involved getting banks to undo the damage done to an extent is taking long. Borrowers, regulators and the Congress is expected to get a report card that will reflect how well the lenders are keeping the promises made in the settlement.

Joseph Smith, a former North Carolina Banking Commissioner was trusted with the task of overseeing the compliance by the banks. He published an interim report earlier this year, which mentioned that around 5700 complaints were received from borrowers. In a recent interview he said, “We are not there yet.” According to him there are far too many situations that are simply not acceptable.

The spate of complaints has only increased and it has led to New York Attorney General Eric Schneiderman whose office has been getting several of them, to plan legal action against Wells Fargo and Bank Of America. In an interview to CNBC he mentioned the fact that these banks were not keeping the promises they made, which is why he felt compelled to take them to court.

However a spokeswoman from Bank Of America assured that the mentioned complaints would be looked into and addressed sooner rather than later. Wells Fargo on the other hand vouched for its commitment to the settlement and promised to offer transparency into the progress that’s being made in the relief offered to its customers.

Things are not very different in other states including Florida where Attorney General Pam Bondi’s office fielded around 300 complaints in a week. She’s written to the Bank of America voicing her concerns about the systematic problems with the practises still being followed.

Illinois Attorney General Lisa Madigan stated that in several instances banks were asking for the same documents over and over again. She believes borrowers are being put through the same frustrating wait and run-around, which leads to delays and pushes them closer to foreclosure.

Deborah Goldberg, special project director at the National Fair Housing Alliance says that there are several violations of the provisions made in the settlement and people are having a tough time dealing with them.

The California Reinvestment Coalition, which is a group of nonprofits that works towards helping home owners facing foreclosure, realized that there were several violations of the settlement. Problems included the fact that borrowers didn’t have a single point of contact while there were foreclosure procedures that were brought out when modification process was underway.

Sen. Barbara Boxer, D-Calif, recently urged the regulators to take stronger actions against such violations. According to her while the banks have been given respite from the legal uncertainty, home owners are still struggling.

Like this settlement last year, in April 2011 four federal bank regulators had asked 14 mortgage related firms to pull up their socks and fix the procedures that were given to errors. They believed these processes were so flawed and widespread that they needed remedies on an urgent basis.

Review of four million loans to confirm the cases of delays, lost documents etc was also called for. But sadly the review was cancelled by the regulators in January because it was costing a lot of money and was long drawn out.  A Government Accountability report in April mentioned that this review did not have enough data to know the extent of damage suffered by home owners. However the settlement was put through and home owners received a few hundred dollars from lenders in the end.

One of the objectives of the settlement was to encourage lenders to speed up loan modifications. The solution could have been as simple as cutting down the interest rate, in many instances.

But it hasn’t brought the expected results; around 905,000 mortgages were modified in a year since the settlement. That’s a drop in numbers from 950,000 the previous year and 1.6 million the year before that. Of course the numbers include modifications made by lenders who were not a part of this settlement too.

However it’s a reflection on the problems that still exist because foreclosure proceedings have begun against other million home owners in the same period. Tates were lucky to have savings that bailed them out of the foreclosure proceedings. But those other millions find themselves in the foreclosure pipeline, which is just not the place anyone would want to be in.

Kevin Hartmann