National Mortgage Settlement: New Rules Help Protect Homeowners in Foreclosure
Ally/GMAC, Bank of America, Citi, JPMorgan Chase, and Wells Fargo must follow new requirements when servicing loans and dealing with 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, particularly loans in foreclosure. These new standards are 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.
Read on to learn about the servicing requirements under the National Mortgage Settlement and what to do if your servicer does not comply.
(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 must (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.
(Learn more about the National Mortgage Settlement, who is eligible for relief under the settlement, and the types of relief provided by the settlement in National Mortgage Settlement: Can You Benefit?)
Servicers That Must Comply With the Settlement
The settlement applies to the following five major loan servicers:
- Bank of America
- 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, are not covered by the consumer relief part of the settlement. However, servicers must 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/loanlookup and www.freddiemac.com/mymortgage.)
Loan Servicing Reforms
The National Mortgage Settlement's servicing guidelines primarily address the most egregious servicing abuses that occurred in the past, such as robosigning and faulty loan ownership documentation. These servicing standards are in effect until the latter part of 2015.
Under the settlement, servicers must adhere to the following standards in the areas of general servicing requirements, pre-foreclosure notices, foreclosure documentation, and dual tracking.
General Servicing Requirements
Servicers are 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 must provide a notice to the homeowner that includes 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 include 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.
Pleadings, affidavits and default notices must be accurate, complete, and supported by competent and reliable evidence. This means that servicers must ensure that these documents are:
- based on personal knowledge (or on a review of documents in the file), and
- do not contain false or unsubstantiated information.
Additionally, servicers must act in accordance with state law notarization requirements, including signing in the presence of a notary.
Restrictions on Dual Tracking
The National Mortgage Settlement prohibits dual tracking and provides specific time frames in which a borrower must 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 submits a complete loan modification application within 120 days of the delinquency, then the lender must review the borrower's package and make a decision before referring the loan to foreclosure. (If the borrower submits a substantially complete package, then the lender must give the borrower ten days to submit the remaining necessary documents.)
Once a complete application is received, the foreclosure cannot proceed until:
- the servicer determines that borrower is not eligible
- the borrower declines the loan modification offer or fails to accept the offer within 14 days, or
- the borrower fails to send the first trial payment or breaches the trial modification.
If the servicer issues a denial that gives rise to an appeal right, the servicer cannot proceed to a foreclosure sale until the appeals process is concluded.
After referral to foreclosure. If the borrower submits a complete loan modification application after the case is referred for foreclosure, the timelines are as follows.
- If the servicer receives a complete loan modification application from the homeowner within 30 days of the "Post Referral to Foreclosure Solicitation Letter," then the servicer cannot proceed to judgment or sale while the application is pending. (Within five business days of referral to foreclosure, the servicer must send the borrower a Post Referral to Foreclosure Solicitation Letter that lets the borrower know he or she can still apply for a loan modification or other loss mitigation options.)
- If the application is received more than 30 days after the letter, but more than 37 days before the sale is scheduled, the servicer cannot proceed to sale while an application is pending.
- If the borrower applies 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 must perform an expedited review of the package and, if the borrower is approved for a loan modification, shall not foreclose until the borrower declines or breaches the trial modification.
- If the borrower submits 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 must 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.
What to Do if Your Servicer Does Not Comply With the Terms of the Settlement
Homeowners cannot directly enforce the terms of the settlement with their servicers. The Office of Mortgage Settlement Oversight (the entity overseeing the settlement) is tasked with ensuring that the banks comply with the servicing standards and consumer relief requirements outlined in the national mortgage settlement.
If you feel your servicer is not acting in compliance with the settlement, you can go to the Office of Mortgage Settlement Oversight’s webpage at www.mortgageoversight.com and click on “Report My Loan Issue” to fill out a form and make a complaint with the Consumer Financial Protection Bureau.
More Information on the National Mortgage Settlement
To learn more about the National Mortgage Settlement, go to http://nationalmortgagesettlement.com or contact your mortgage servicer.