Among major mortgage servicers comprising JPMorgan Chase & Co. (JPM), Bank of America Corp (BAC), Ally Financial Inc., Citigroup Inc. (C) and Wells Fargo & Company (WFC), three banks have not yet complied with all the provisions of the National Mortgage Settlement (NMS) deal. This was disclosed in the second report submitted by Joseph A. Smith – the independent monitor overseeing the progress the deal – to the U.S. Court for the District of Columbia.
The above-mentioned banks are required to get their performance evaluated under the NMS deal with the help of 29 metrics. This time, Wells Fargo and Ally Financial fulfilled all the criteria. In the first compliance report submitted in June, only Ally Financial was able to meet all the criteria. Notably, at present, Ocwen Financial Corp. (OCN) handles most of Ally Financial’s mortgage servicing.
In 2012, these five major mortgage servicers had signed the $25 billion agreement with 49 state attorney generals to improve their servicing standards and provide relief to distressed borrowers. Though the banks fulfilled most of the financial commitments before time, certain provisions were not met.
In total, three banks failed with respect to seven metrics in the first half of 2013. JPMorgan had problems related to its failure in sending accurate pre-foreclosure letters to borrowers and inability to notify borrowers about mortgage modification decisions in time.
Citigroup failed to clear two metrics, out of which one required the timely dispatch of letters notifying borrowers about mortgage modification decisions and the other demanded that borrowers be informed in time about missing documents related to the short sale. BofA could not clear three metrics, namely notifying borrowers about missing documents in time, sending proper pre-foreclosure letters to borrowers and declaring loans to be delinquent when the foreclosure process was initiated.
However, the banks are striving to make amends and compensate aggrieved borrowers. Nevertheless, if the problems persist, the NMS deal has provisions for penalties and court actions. The banks will then be subject to penalties of up to $5 million for each unfulfilled metric.
Additionally, lapses on part of the banks might prevent borrowers from making timely payments, consequently causing them to lose their homes. This in turn, could lead to higher foreclosure activity going forward.
Though the banks have failed to conform to all servicing standards, problems such as robo-signing and charging of high fees to process mortgage modifications have mostly disappeared. Also, the banks are providing more transparency and accountability while dealing with distressed homeowners.
Moreover, both homeowners and banks are expected to benefit from the resurgence in home prices. At the same time, banks are required to meet all the servicing standards and fulfill their deal obligations. The stabilizing housing sector, increase in jobs and low mortgage rates will likely make homeowners avoid foreclosures.