7 Ways Banks Failed Mortgage Settlement Compliance in 2013

source: http://www.flickr.com/photos/wwworks/

Source: http://www.flickr.com/photos/wwworks/

“My team and I tested the banks’ compliance with the National Mortgage Settlement’s original 29 metrics for the first half of this year,” said Joseph Smith, monitor of the organization, in a December 4 oversight update. “My testing confirmed six fails in the first quarter of 2013 and one in the second quarter of 2013.”

As with any massive regulatory effort, compliance with the terms of the National Mortgage Settlement hasn’t been a perfectly smooth process. The settlement was reached in February 2012, when the attorneys general of 49 states (every state except Oklahoma) and the District of Columbia reached an agreement with major banks and mortgage services to create new service standards and to provide relief to distressed homeowners.

The agreement emerged from the economically destructive fallout of the mortgage and credit crisis that, in the eyes of critics, was agitated if not outright caused by the abusive behavior of major financial institutions. It obligated the banks to provide at least $25 billion in consumer relief as settlement for claims of improper mortgage servicing practices.

As detailed by the Office of Mortgage Settlement Oversight, the money will be distributed mostly to homeowners who are in danger of foreclosure in order to pay down mortgage principal ($17 billion), with the rest going toward the refinancing of underwater homes ($3 billion), direct payments to homeowners who lost their homes ($1.5 billion), and miscellaneous civil penalties.

The settlement was reached with the mortgage businesses of five major financial institutions: Ally Financial, Bank of America (NYSE:BAC), Citigroup (NYSE:C), Wells Fargo (NYSE:WFC), and JPMorgan Chase (NYSE:JPM).

ResCap Parties, the mortgage unit of Ally Financial, and Wells Fargo both made it through the first half of 2013 without failing any of the monitor’s tests. Bank of America failed three tests, Citi failed two, and Chase failed two. (Wells Fargo did fail one compliance test in the second half of 2012, related to loan document collection, but appears to have resolved the issue.)

Each bank was given a score card showing which tests it failed and by how much. The tests are related to implementation and execution of the new serving standards established by the settlement and are designed to test things such as whether banks are providing enough notice for foreclosures, whether banks are charging appropriate fees, and how quickly banks respond to complaints.

Bank of America’s scorecard (click for larger image):

BofACompliance

Source: https://www.mortgageoversight.com/reports/oversight-update/

Citi’s scorecard (click for larger image):

CitiCompliance

Source: https://www.mortgageoversight.com/reports/oversight-update/

Chase’s scorecard (click for larger image):

ChaseCompliance

Source: https://www.mortgageoversight.com/reports/oversight-update/

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