An essential element of last year's $26 billion national settlement with five major banks was that underwater homeowners would get more help. New rules meant banks could no longer hide behind a bureaucratic morass of lost paperwork and other delays to slow a homeowner's loan modification request while simultaneously pursuing foreclosure. But complaints have flooded in that banks are not following through. Florida Attorney General Pam Bondi, a member of the settlement's monitoring committee, should look to the aggressive actions of other attorneys general as a model.
New York Attorney General Eric Schneiderman says he plans to sue Wells Fargo and Bank of America, two banks that are part of the settlement, based on homeowners' complaints. Bondi and the monitoring committee should help with that effort, because New York's experience is part of a wider pattern. The Massachusetts attorney general formally complained to the settlement monitor that the agreement's requirements are "often ignored." In California, a recent survey of 84 housing counselors and lawyers found that banks also are noncompliant there.
Bondi says that her office has been "closely monitoring" settlement compliance. But at ground level it doesn't appear to have had much impact. She should check in with Karine Gialella, who specializes in foreclosure defense at Gulfcoast Legal Services in Pinellas County, who says that the settlement has barely altered business-as-usual.
In Gialella's experience, banks rarely reduce the mortgage principal so homeowners can remain in their homes, which was one of the settlement's goals. And rather than expedite and ease loan modifications, banks are making it harder by adding picayune paperwork to their modification application and delaying review so homeowners have to refile their application to keep it current, Gialella says. The extra time adds fees, penalties and interest to the mortgage, making it more likely that homeowners will fall deeper into arrears.
Under the settlement with 49 state attorneys general and the U.S. Justice Department, Ally Financial/GMAC, JPMorgan Chase, Citibank, Bank of America and Wells Fargo agreed to correct their customer service deficiencies by adopting new servicing standards. Those changes include strict timelines for notifying a borrower of missing documents and for making a decision on the modification request. Banks also promised to end dual-tracking, where a foreclosure is pursued while homeowners are being considered for a loan modification.
The agreement told banks to stop giving borrowers the runaround and start providing tangible relief to underwater homeowners. The banks say they are doing just that, but that assertion is at odds with the experience in many states. Bondi should renew her efforts to ensure that the banks are holding up their end of the agreement.