Bank of America and Wells Fargo still have not cleaned up their mortgage servicing practices, a year after being mandated to do so, a legal settlement watchdog said Wednesday.
The two megabanks both failed tests designed to see whether they were following the rules of a national mortgage servicing settlement, according to a new report from settlement monitor Joseph Smith, a former North Carolina banking commissioner.
The $25 billion settlement between state attorneys general and five large U.S. banks announced last year was intended to put an end to widespread evidence of shoddy mortgage servicing practices by imposing a slate of more than 300 rules.
Wednesday’s report covered 29 tests gauging how they’ve done. It came after months of complaints from homeowners saying they’re still having a hard time working with their banks – and just days after new legal documents claimed Bank of America had given incentives such as bonuses and gift cards to employees to push people into foreclosure.
Smith found Bank of America failed two tests, each in the first quarter of this year. One requires banks to provide correct information in letters sent to homeowners before sending them into foreclosure. The other requires banks to tell borrowers working on a loan modification whether they have sent in all the correct documents within five days.
Wells Fargo failed one test in the fourth quarter last year. It also involved telling people about missing documents within five days.
“What the report shows to me is we still have some work to do,” Smith told the Observer.
Citigroup and JPMorgan Chase also failed certain tests. Only ResCap, formerly the servicing arm of Ally Financial, did not fail a test. ResCap has sold its loans to specialty servicers, who will continue to be evaluated on the rules.
For most rules, banks are allowed to make errors in a certain percentage of cases – for example, 5 percent. Failing a test means the percentage of mistakes exceeds that threshold.
The banks found in violation of the settlement have been directed to come up with plans to fix the problems. Should they break those rules again, Smith can impose fines of $1 million or more.
Bank of America said its errors did not result in any improper foreclosures or loan modification denials.
“We took immediate action to resolve both gaps and have since resolved one area and will soon return to compliance in the other,” spokeswoman Jumana Bauwens said in a statement.
Wells Fargo said it has now fixed the problem that led it to fail the test last year. The bank also pointed out that it believes it will pass all 28 of its tests for the first quarter of this year.
“We promptly initiated an action plan to improve our response to borrowers on their loan modification applications,” spokesman Tom Goyda said in a statement.
“We remain firmly committed to meeting the standards established by the National Mortgage Settlement and we will continue to improve our services for customers.”
The report is the first disclosure of how the banks have conformed to the servicing standards. Previous reports have touched only on the amount of mortgage relief the banks have provided directly to homeowners.
At last count, the five banks had provided about $50.6 billion in relief through short sales, second-lien extinguishments and principal reduction. Bank of America and Wells Fargo have provided a combined $33 billion.
Not every form of relief will receive dollar-for-dollar credit under the settlement. Some forms will receive just pennies on the dollar.
Wednesday’s report comes after tens of thousands of complaints have poured into the monitor’s office. Nearly a third have involved problems with the “single point of contact” system each bank is supposed to have in place to match a borrower in distress with a bank employee, the report shows.
All five banks passed the test involving the single point of contact system. But Smith said he is planning to impose new tests on the system that will be tougher.
Housing and Urban Development Secretary Shaun Donovan said on a conference call with reporters that the current test basically looks only at whether the banks have set up a single point of contact system. All have done so.
The new tests will gauge its effectiveness. Smith said the terms of the actual tests would be released in the coming weeks.
The report also comes on the heels of new court documents in which former Bank of America employees claim they were encouraged to put homeowners into foreclosure rather than help them get their loans modified. Employees who put 10 people into foreclosure could get a $500 bonus, or a Target or Bed, Bath and Beyond gift card, one former worker said.
The employees, including William Wilson, who worked as a Bank of America underwriter in Charlotte from June 2010 through August 2012, also claimed that the bank would sit on documents sent in from homeowners looking for a loan modification for weeks.
“It was clear that Bank of America was regularly receiving time-sensitive financial documents from homeowners … and not acting on the documents for months on end,” he said, according to the documents filed in federal court in Boston. An attorney representing plaintiffs in the case said Wilson has declined to speak to the media.
U.S. Rep. Maxine Waters has called for an investigation into the claims. “It goes without saying that this is an outright abuse of consumers and government mortgage-assistance programs,” the California Democrat wrote in a letter to government officials.
Smith said he was aware of the claims in the court documents, but declined to comment on them. He said his office would be looking at whether banks appear to be purposely delaying during loan modifications as his work continues.
New York Attorney General Eric Schneiderman called Wednesday’s report affirmation of his claims that Bank of America and Wells Fargo had violated provisions of the settlement. Last month, Schneiderman said he would pursue a lawsuit against the two banks after documenting evidence that they had not been responding to homeowners’ loan modification requests quickly enough.
Staff writer Deon Roberts contributed.
Dunn: 704-358-5235 Twitter: @andrew_dunn