Banks Fall Short in Helping Struggling Homeowners
Homeowners trying to avoid foreclosure must wait too long for their loan modification applications to be reviewed by some of the nation's top mortgage servicers, a report said Wednesday. Such delays can plunge borrowers deeper in debt.
Joseph A. Smith, Jr., the independent monitor of last year's national mortgage settlement, said that while the banks are doing a better job complying with new mortgage servicing rules, more needs to be done.
"It is clear to me that the servicers have additional work to do both in their efforts to fully comply with the (settlement) and to regain their customers' trust," Smith said in the report.
Smith, whose office conducted 29 performance tests on how five of the largest U.S. mortgage servicers are meeting the new rules, said the banks need to do a better job collecting customer records and notifying borrowers in a timely manner about decisions on their applications, including when there are any missing documents
The banks should also provide borrowers with a knowledgeable and helpful person as a single point of contact to make it easier for applicants to keep track of their request, Smith said. Most of the nearly 60,000 complaints Smith's office had received in recent months were related to the lack of a single point of contact at the mortgage servicer for borrowers.
The banks are working to correct the problems and will be tested later on to check their progress, Smith said.
The settlement among 49 states, federal government agencies and lenders JPMorgan Chase, Bank of America, Wells Fargo, Citigroup and ResCap Parties (formerly Ally Financial and GMAC) set new rules for how banks handle troubled home loans and provided for up to $25 billion in financial relief to homeowners.
The standards prohibit the lenders from pursuing foreclosure while negotiating a loan modification. They require the banks to acknowledge in writing a refinancing application within three business days, notify the borrower of any missing documents within five days and make a decision on a complete application within 30 days.
Department of Housing and Urban Development Secretary Shaun Donovan said Smith's report showed four of the five banks tested "consistently failed to send notices and communicate decisions to homeowners in a timely manner." ResCap Parties was the exception among the five banks, the report said.
Donovan said those types of delays by mortgage servicers can put homeowners at risk of either falling behind or losing their homes. They were the same kinds of lending practices that contributed to the foreclosure crisis, he added.
"This is unacceptable," Donovan said. "The homeowners who have experience servicing abuse deserve justice and we won't stop until that justice is served."
Donovan said if the problems persist, fines and court action are possible remedies.
The settlement helped close a difficult chapter of the financial crisis when home values sank and millions edged toward foreclosure. Many firms had processed foreclosures without verifying documents.
The agreement reduces mortgage debt for only a fraction of those whose mortgages are underwater. About 11 million U.S. households are underwater, and the settlement is expected to help about a million of them.
The servicers reported distributing $50.63 billion in direct relief, including loan modifications and principal reductions, to more than 620,000 homeowners through the settlement, according to a report by Smith last month.