The National Mortgage Settlement, which binds five of the largest mortgage servicers in the nation, set new standards for when it comes to loan servicing, especially for loans in foreclosure. One goal of the settlement was to reform how the banks service mortgage loans so that past abuses (like robosigning) do not continue to occur. Over the past year that the settlement has been in effect, however, distressed borrowers have found that there continue to be major servicing problems (such as poor communication, as well as continued dual tracking) with the banks that are parties to the settlement.
Unfortunately, individuals cannot sue banks under the National Mortgage Settlement (NMS) in order to force them to comply with the NMS provisions. However, the NMS has a settlement monitor who has the power to oversee and manage the settlement to ensure that struggling homeowners get the help they need when they are facing foreclosure. Read on to learn more about how the settlement monitor will make sure that banks comply with the terms of the agreement and how you can let the monitor know if you feel your servicer is not complying with the settlement.
The National Mortgage Settlement
In February 2012, 49 state attorneys general and the federal government reached a historic settlement with Ally/GMAC, Bank of America, Citi JPMorgan Chase, and Wells Fargo to hold them accountable for the servicing violations that contributed to the mortgage crisis in this county.
Consumer Relief Under the Settlement
The settlement required that the banks provide extensive relief to borrowers in the form of loan modifications, refinancing, and even cash payouts. (Learn more in Nolo’s article National Mortgage Settlement: Can You Benefit?)
Mortgage Servicing Standards Under the Settlement
Also as part of the settlement, the banks must comply with new servicing standards, including (among other things):
- doing certain things for all loans (such as sending monthly statements with certain information, applying payments promptly, minimizing servicing-related fees, and limiting force-placed insurance)
- sending a pre-foreclosure notice to the homeowner before referring a case to foreclosure
- appointing a single point of contact for loss mitigation efforts
- only using accurate and complete documentation that is supported by competent and reliable evidence in the foreclosure process, and
- discontinuing the practice of dual tracking (when the mortgage servicer proceeds with foreclosure while simultaneously working with the borrower on a loan modification).
These servicing standards are designed to provide homeowners with better information about their loans, stop servicing abuses, and make sure that borrowers in foreclosure have access to loss mitigation opportunities. (Learn more about the servicing requirements that the banks must follow when servicing loans and dealing with homeowners in foreclosure in Nolo’s article National Mortgage Settlement: New Rules Help Protect Homeowners in Foreclosure.)
The “Office of Mortgage Settlement Oversight” Oversees the Settlement
The Office of Mortgage Settlement Oversight, along with the settlement monitor Joseph A. Smith, Jr., are charged with ensuring that the banks comply with the settlement requirements and improve their mortgage servicing operations.
Measuring the Banks’ Compliance
Since the new servicing requirements went into effect, there have been ongoing complaints from distressed homeowners regarding violations of the settlement in the areas of loan modifications, dual tracking, single points of contact, and billing and account statement accuracy. (Learn about other errors that servicers may make when it comes to managing homeowners’ accounts in Nolo’s article Abuses by the Mortgage Servicing Industry).
To address these continuing servicing abuses, the monitor recently announced several new metrics (which are basically compliance tests), to measure how well the banks are adhering to the settlement’s servicing standards. The monitor will receive and review periodic reports from the banks to determine whether or not the banks are acting in compliance with the settlement's requirements.
Compliance Testing to Start in January and April
Compliance testing pertaining to loss mitigation and billing statements will begin on January 1, 2014 and is intended to ensure that:
- borrowers are provided contact information for a single point of contact for the loss mitigation process (where borrowers and their lenders work together to prevent foreclosures by way of loan modifications or other alternatives to foreclosure) and
- that monthly billing statements are accurate and detailed.
Compliance testing related to loan modifications will begin on April 1, 2014. Those tests are meant to:
- ensure that the servicers do not reject a borrower’s loan modification application or proceed with a foreclosure for at least 60 days (increased from 30 days) while the borrower is responding to requests for additional documents
- test the banks’ communications to borrowers of the requirements of a loan modification application
- confirm that the banks properly communicate a denial to those borrowers whose loan modification applications are denied, and
- communicate other loss mitigation alternatives available to the borrower. (Learn more about loan modifications and other alternatives to foreclosure.)
Once testing is complete, the settlement monitor is authorized to establish a corrective plan with the bank if he determines that it is not acting in compliance with the settlement. If the bank continues to fail to meet the requirements of the settlement, the District of Columbia District Court can take action against it by imposing penalties and/or injunctive relief.
Reporting Your Mortgage Issue
The settlement monitor cannot assist individual homeowners with their specific mortgage or foreclosure problems. Learn more on the Office of Mortgage Settlement Oversight website. If you feel your servicer is not acting in compliance with the settlement, the Consumer Financial Protection Bureau (CFPB) may be able to help you resolve your personal issue with your servicer. Go to the CFPB’s website at www.consumerfinance.gov and click on "Submit a complaint". You can also call 855-411-2372.
The CFPB will also inform the monitor about consumer complaints regarding mortgage servicers that are part of the National Mortgage Settlement. If multiple homeowners are experiencing the same difficulties with a particular servicer, this can indicate that the servicer has a pattern of violating the terms of the settlement, which the monitor will then address.
Keep in mind that a few states have enacted legislation with mortgage and foreclosure reforms similar to those in the National Mortgage Settlement. If a state law provides a private right of action, you can bring a lawsuit to enforce the provisions yourself. One example of such a state law is California's Homeowner Bill of Rights. To find the foreclosure laws in your state, visit our State Foreclosure Laws page.
Also, the servicing requirements under the NMS are largely duplicated by the Consumer Financial Protection Bureau’s servicing rules.
Learn More About the National Mortgage Settlement
More information about the National Mortgage Settlement is available at www.nationalmortgagesettlement.com.