National Mortgage Settlement: Rules to Help Protect Homeowners in Foreclosure

The National Mortgage Settlement with five of the largest mortgage servicers (Ally/GMAC, Bank of America, Citi, JPMorgan Chase, and Wells Fargo) set new standards for the servicing of loans.

The 2012 National Mortgage Settlement with five of the largest mortgage servicers (Ally/GMAC, Bank of America, Citi, JPMorgan Chase, and Wells Fargo) set certain standards for the servicing of loans, particularly loans in foreclosure. These standards were designed to provide homeowners (both those in good standing and those in foreclosure) with more information, limit servicing abuses related to fees, prohibit dual-tracking, and more. (If you are struggling to pay your mortgage or facing imminent foreclosure, visit our Foreclosure section for help.)

The National Mortgage Settlement

In February 2012, 49 state attorneys general and the federal government reached a historic settlement with five of the nation’s largest banks. As part of the settlement, the banks were required to (among other things):

  • provide cash payments to former homeowners who went through foreclosure in 2008-2011
  • make cash payouts to the states to address foreclosure related issues
  • provide assistance such as modifications and refinancing for homeowners who are underwater (where you owe more on your mortgage than your home is worth), and
  • comply with new servicing standards.

Servicers Subject to the Settlement

The settlement applied to the following five major loan servicers:

  • Ally/GMAC
  • Bank of America
  • Citi
  • JPMorgan Chase, and
  • Wells Fargo.

To find out who your mortgage servicer is, look at your mortgage payment coupon. (A loan servicer is the company that you make your monthly mortgage payment to, which may be different than the owner of your loan).

Fannie Mae and Freddie Mac loans. Loans serviced by one of the servicers above, but owned by Fannie Mae or Freddie Mac, were not covered by the consumer relief part of the settlement. However, servicers had to service Fannie and Freddie loans in compliance with the settlement’s servicing guidelines. (To find out if either Fannie Mae or Freddie Mac owns your loan, go to www.knowyouroptions.com/loanlookupand www.freddiemac.com/mymortgage.)

Loan Servicing Reforms

The National Mortgage Settlement's servicing guidelines primarily addressed the most egregious servicing abuses that occurred in the past, such as robosigning and faulty loan ownership documentation. These servicing standards were in effect until the latter part of 2015. (Most of the expired servicing standards are now covered by federal law.)

Under the settlement, servicers had to adhere to the following standards in the areas of general servicing requirements, pre-foreclosure notices, foreclosure documentation, and dual tracking.

General Servicing Requirements

Servicers were required to do certain things for all loans including:

  • sending a monthly statement with account information
  • accepting and applying payments promptly
  • minimizing servicing-related fees, and
  • limiting force-placed insurance.

(Learn about errors that servicers make when it comes to managing homeowners’ accounts in Nolo’s article Abuses by the Mortgage Servicing Industry).

Pre-Foreclosure Notice Requirements

At least 14 days before referring a case to foreclosure, the servicer had to provide a notice to the homeowner that included information such as:

  • facts supporting the right to foreclose
  • account information (the amount needed to bring the account current, the interest rate, the principal amount, the date of the last full payment, etc.), and
  • a statement outlining the loss mitigation efforts undertaken before the referral to foreclosure and, if applicable, why the borrower was ineligible for a loan modification or other alternative to foreclosure.

(To learn more about loss mitigation and find out about options to avoid foreclosure, see our Alternatives to Foreclosure area.)

The notice must also have included statements that the borrower may receive upon written request:

  • a payment history (from when the borrower was last less than 60 days past due to the present)
  • the name of the investor that holds the loan
  • a copy of the promissory note, and
  • copies of any assignment of mortgage or deed of trust to demonstrate the legal right to foreclose on the promissory note.

Foreclosure Documentation

Under the settlement, pleadings, affidavits and default notices had to be accurate, complete, and supported by competent and reliable evidence. This means that servicers had to ensure that these documents were:

  • based on personal knowledge (or on a review of documents in the file), and
  • did not contain false or unsubstantiated information.

Additionally, servicers had to comply with state law notarization requirements, including signing in the presence of a notary.

Restrictions on Dual Tracing

The National Mortgage Settlement prohibited dual tracking and provided specific time frames in which a borrower could apply for a loan modification in order to stop the foreclosure process. (Dual tracking occurs when the mortgage servicer proceeds with foreclosure while simultaneously working with the borrower on a loan modification.)

Prior to foreclosure referral. If a borrower submitted a complete loan modification application within 120 days of the delinquency, then the lender had to review the borrower's package and make a decision before referring the loan to foreclosure. (If the borrower submitted a substantially complete package, then the lender had to give the borrower ten days to submit the remaining necessary documents.)

Once a complete application was received, the foreclosure could not proceed until:

  • the servicer determined that borrower is not eligible
  • the borrower declined the loan modification offer or failed to accept the offer within 14 days, or
  • the borrower failed to send the first trial payment or breached the trial modification.

If the servicer issued a denial that gave rise to an appeal right, the servicer could not proceed to a foreclosure sale until the appeals process was concluded.

After referral to foreclosure. If the borrower submitted a complete loan modification application after the case was referred for foreclosure, the timelines were as follows.

  • If the servicer received a complete loan modification application from the homeowner within 30 days of the "Post Referral to Foreclosure Solicitation Letter," then the servicer could not proceed to judgment or sale while the application was pending. (Within five business days of referral to foreclosure, the servicer had to send the borrower a Post Referral to Foreclosure Solicitation Letter that let the borrower know he or she could still apply for a loan modification or other loss mitigation options.)
  • If the application was received more than 30 days after the letter, but more than 37 days before the sale was scheduled, the servicer could not proceed to sale while an application was pending.
  • If the borrower applied for a loan modification more than 30 days after the Post Referral to Foreclosure Letter, but between 37 and 15 days prior to a scheduled sale date, the lender had to perform an expedited review of the package and, if the borrower was approved for a loan modification, could not foreclose until the borrower declined or breached the trial modification.
  • If the borrower submitted a complete loan modification application more than 30 days after the Post Referral to Foreclosure Letter and less than 15 days before a scheduled foreclosure sale, then the servicer had to notify the borrower before the sale date as to the servicer’s determination (if a review was completed) or of its inability to complete a review.

More Information on the National Mortgage Settlement

To learn more about the National Mortgage Settlement, go to http://nationalmortgagesettlement.com.

Talk to a Lawyer

Start here to find foreclosure lawyers near you.

How it Works

  1. Briefly tell us about your case
  2. Provide your contact information
  3. Choose attorneys to contact you
FEATURED LISTINGS FROM NOLO
Swipe to view more
FACING FORECLOSURE ?

Talk to a Foreclosure attorney.

We've helped 75 clients find attorneys today.

How It Works

  1. Briefly tell us about your case
  2. Provide your contact information
  3. Choose attorneys to contact you