The monitor over the National Mortgage Settlement, the $25 billion agreement with the five big lenders that turned a year old this month, conceded that borrowers are still experiencing serious issues with the banks, such as dual-tracking, poor communication and mortgage modification hassles.
Joseph A. Smith, who heads the Office of Mortgage Settlement Oversight, responded to much of the criticism over the agreement between state/federal authorities and the five lenders which was suppose to end abusive practices — such as moving forward with a foreclosure while negotiating a lower mortgage payment, the practice known as “dual-tracking.”
“Through the complaints and my meetings with AG (attorneys general) staff, housing counselors and lawyers, I have gotten an earful about the issues that borrowers continue to experience,” Smith said in remarks Wednesday for a housing and finance symposium. “… problems with single points of contact, dual tracking and the loan modification process in general are still occurring all too often. These are the issues that guide my conversations with the banks.”
Smith was primarily responding to a survey of housing counselors who help struggling homeowners. The survey released by consumer groups found that consumer protections mandated by the National Mortgage Settlement were being violated by the banks that are parties to the settlement: Ally/GMAC, Bank of America, Citibank, JPMorgan Chase, and Wells Fargo.
In addition to dual-tracking, there are regular issues with the mandate to provide “single point of
contact” to help borrowers overcome delays and confusion when dealing with the banks, the counselors said.
Smith said the settlement anticipated that there would be issues with the banks meeting servicing standards.
“As a result of what I have heard from consumers and professionals, I am now working with the banks to establish my discretionary metrics. They are not yet completed, but they will address what I have learned in the last year,” Smith said.
Here are responses by Smith to other criticisms of the National Mortgage Settlement:
Short sales have accounted for too many transactions, breaking the intended goal of keeping as many borrowers in their homes as possible.
“Short sale related relief has in fact accounted for a large number of transactions and a significant portion of the gross dollar relief reported by the banks. However, it is important to remember the requirement in the settlement that 60 percent of the total credited relief come from first or second lien principal forgiveness.
“While short sales are an important tool in the overall effort to relieve borrowers across the country from the burdens of excessive mortgage debt, they will not comprise a majority of the settlement’s credited relief. Banks simply cannot short sale their way to satisfaction of their obligations under the settlement.”
Banks can get credit under the settlement for modifying a second lien, but leave a borrower with a first lien that the borrower is still unable to afford and, though the bank gets credit under the settlement, the borrower is still sent to foreclosure.
“This is a more difficult case than short sales, as second lien relief is intended to be a significant form of relief under the settlement. Here again, some difficulty has been created because the second lien disclosure in our progress reports is gross dollar relief, while much of such relief will be credited for much less than dollar for dollar, often as low as $0.10 on the dollar.
As I mentioned, the settlement requires that 60 percent of the total credited relief come from lien forgiveness – of that 60 percent, at least half must come from first lien modifications.”
Fair Consumer Relief
Community and civil rights groups say further steps should be taken to ensure that at least a fair share of consumer relief go to low and moderate income borrowers, particularly those in communities of color.
“I share the concern expressed by these groups. The devastation that subprime lending inflicted on these communities and the growing disparity in wealth in our country are serious issues that deserve a serious response. However, while the settlement obliges me to evaluate servicer policies and procedures in this regard, it does not prescribe outcomes.
“Likewise, while I do have access to certain loan level information, I do not have access to demographic or zip code data. The settlement is meant to address a variety of serious shortcomings in distressed mortgage servicing; it did not focus on fair lending claims.
“In fact, those claims are expressly preserved in the release that the government provided to the settling servicers; they have not been settled. That said, I am having continuing discussions with the servicers to establish that consumer relief benefits have been made broadly available.”