Wall Street Journal
By Andrew R. Johnson
More than a year after five large banks agreed to pay $25 billion and improve their foreclosure practices, the lenders are facing fresh criticism for failing to live up to their end of the bargain.
The overseers of the February 2012 settlement on Wednesday rolled out a new set of rules designed to address what regulators and consumer advocates say are persistent problems in banks’ handling of borrowers’ loan-modification requests.
The landmark settlement with Bank of America Corp., J.P. Morgan Chase & Co., Citigroup Inc., Wells Fargo WFC & Co. and Ally Financial Inc., federal regulators and 49 state attorneys general was intended to put an end to problems that have driven some borrowers on the brink of foreclosure deeper into debt.
The pact led to more than 300 new standards for how banks handle foreclosures and loan modifications, in which balances or payments are reduced. Among the requirements: that mortgage servicers notify borrowers of problems with their applications more quickly and provide a single point of contact for borrowers.
But a monitoring committee of 14 state attorneys general that helps oversee the five banks’ compliance with the program said it has received a steady flow of complaints about how the companies are handling borrowers with documentation problems and heard of cases in which lenders moved ahead with foreclosures while borrowers waited to hear whether their loan-modification requests were approved.
One of the most common problems, said Illinois Attorney General Lisa Madigan in an interview, involves banks’ requirements to provide documents they say they need to determine whether to grant a modification.
The five banks agreed to the new metrics, which the monitor will use to measure the banks’ performance on providing borrowers with contact information for people at their banks, evaluate billing statements to ensure their accuracy, improve communication with borrowers over documentation requirements, and give customers more time to respond to requests for additional documentation before proceeding with foreclosures.
A Bank of America spokesman said the changes announced by the settlement monitor on Wednesday will “continue to improve the experience for our eligible customers.”
Michael DeVito, head of home lending servicing for Wells Fargo, said the bank has been “very engaged” in meeting the requirements of the national mortgage settlement.
A spokesman for Citi declined to comment. A spokeswoman for J.P. Morgan didn’t respond to a request for comment. Ally Financial’s mortgage subsidiary Residential Capital LLC sold its mortgage assets to Ocwen Financial Corp. and Walter Investment Management Corp. in a bankruptcy auction last year. Representatives of Ocwen and Walter didn’t respond to a request for comment.
Consumer lawyers and advocates said that despite the banks’ promises last year, borrowers have continued to face hurdles in completing loan modifications.
“The level of frustration among people on the ground is very, very high,” said Josh Zinner, co-director of the New Economy Project, a New York group that works with homeowner advocates. “We’re still talking about the same problems over and over and over again.”
Diane Gochin, 55 years old, said she has been wrestling with her mortgage since 2008, when she first sought a loan modification for her home in Huntingdon Valley, Pa. Ms. Gochin said she was awarded $500 earlier this year as part of of a different settlement several banks reached with government regulators earlier this year, only to receive a new foreclosure notice in July fromthe lender, J.P. Morgan.
“They are going to have a hell of a time getting this house,” says Ms. Gochin, who is representing herself in the foreclosure proceedings.
Gary Jaccarino, 59, said he has been trying to get Wells Fargo to give him loan modification for his home in Staten Island, N.Y., for several years.
“They’ve been making us live on the edge for such a long time, and always leading us in the wrong direction,” Mr. Jaccarino said.
New York Attorney General Eric Schneiderman Wednesday said he was suing Wells Fargo for alleged violations of last year’s settlement. Mr. Devito, the Wells Fargo executive, declined to comment on the suit but said the bank is “disappointed” that the prosecutor “continues to pursue this course of litigation.”
Mr. Schneiderman’s office also reached an agreement with Bank of America under which the bank agreed to take additional steps to help borrowers.
The deal requires Bank of America to appoint high-level staff to work with housing agencies that aid struggling borrowers and give customers the ability to negotiate loan modifications directly with bank employees instead of outside foreclosure attorneys. A spokesman for Bank of America said the bank is pleased with the agreement.
—Robin Sidel contributed to this article.