A new report by the California Reinvestment Coalition (CRC) and the legal advocacy group Housing and Economic Rights Advocates (HERA) shows that the nation's largest banks and mortgage servicing companies continue to violate standards and laws mandated by the National Mortgage Settlement, the California Homeowner Bill of Rights, and new federal mortgage servicing rules. The result is that many homeowners who qualify for loan modifications continue to be wrongfully foreclosed on, further damaging California's communities by displacing families, evaporating their savings, and depressing local tax revenues. The report, based on a survey of 66 HUD certified housing counselors who assist homeowners seeking loan modifications, asked whether new loan servicing rules are putting an end to illegal and sloppy practices that have led to an untold number of foreclosures.
“Though counselors report moderate improvement from prior years, the results were still disheartening,” the CRC concluded from the survey results.
“The foreclosure crisis is not over, in fact, it’s made worse and longer by servicers who refuse to abide by the rules,” said Kevin Stein, Associate Director at the California Reinvestment Coalition. “Servicers are incentivized, and in many cases, required to provide assistance, but what we see instead is incompetent servicing, homeowner run-arounds, improper denials, and unreasonable delays, all resulting in homeowners being pushed closer to foreclosure.”
Wells Fargo was identified as the the worst bank in terms of servicing practices, followed by Bank of America. Both banks service thousands of mortgage loans in Alameda County. Wells Fargo foreclosed on at least 6,000 homeowners in Alameda County between 2006 and 2013, while Bank of America foreclosed on 3,000, according to data obtained from the Alameda County Recorder.
Making matters worse, over the past year the servicing rights to a large number of home loans in California have been sold by the banks to specialized mortgage servicing companies like Nationstar, Ocwen, and Green Tree. For example, last year Nationstar bought the servicing rights to 1.3 million home loans from Bank of America. Newcomers like Ocwen and Nationstar weren't initially subject to some of the new servicing rules and oversight mechanisms contained in the National Mortgage Settlement, even though they now control 17 percent of home loans nationwide. The performance of Nationstar and Ocwen was flagged by housing counselors and borrowers as among “the worst” in CRC's survey, and federal and state regulators are still scrambling to get a handle on the behavior of these newly dominant players in California's mortgage servicing market.
The top complaint against the banks and mortgage servicers is a failure to provide homeowners with a single point of contact when they're seeking a loan modification. Under California law, effective as of January 1, 2013, a mortgage servicing company must assign a single point of contact to each borrower so that they have a consistent channel of communication, but this provision has been routinely ignored by the banks, leading to costly delays, lost paperwork, and in some cases wrongful foreclosures. Some banks have interpreted the single point of contact rule to mean that they can assign borrowers to a team or loan officers, creating further confusion.
So far new federal rules have also failed to change the behavior of the banks. Only 13 percent of the survey's respondents said they feel that new federal loan servicing rules, issued by the Consumer Financial Protection Bureau, are improving the practices of the banks and mortgage servicers. A quarter of respondents said the new rules haven't helped, while 60 percent said it's too soon to tell.
Part of the problem is that federal and state authorities continue to allow the nation's largest banks and mortgage servicers to violate laws without serious repercussions. CRC's report echoes the comments of many housing counselors and homeowners who say that there is a “lack of accountability” for the larger financial companies. When they break the law, the legal and economic costs are low, and borrowers face enormous hurdles to take them to court or otherwise correct their scofflaw behavior.
“We are urging regulators to more closely monitor and enforce existing rules,” said CRC's Stein.