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.)
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):
The settlement applied to the following five major loan servicers:
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.)
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.
Servicers were required to do certain things for all loans including:
(Learn about errors that servicers make when it comes to managing homeowners’ accounts in Nolo’s article Abuses by the Mortgage Servicing Industry).
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:
(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:
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:
Additionally, servicers had to comply with state law notarization requirements, including signing in the presence of a notary.
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:
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.
To learn more about the National Mortgage Settlement, go to http://nationalmortgagesettlement.com.