August 10, 2012

Holding the Banks’ Feet to the Fire

A recent article by the Huffington Post’s Peter Goodman showed how one homeowner from the Bronx has continued to struggle to save her home because of the outrageous treatment she’s received at the hands of the bank that services her loan.  Reporting with painstaking detail the obstacles Bank of America has thrown up as Katie Diaz spent months trying to secure a mortgage modification that lowered her monthly costs, Goodman’s piece highlights the reality too many homeowners have faced during this crisis – the dropped calls, lost paperwork and poor customer service that leaves them frustrated, confused and unsure whether they will be able to save their home.

Unfortunately, the author assigned much of the blame for these failures not to Bank of America, Ms. Diaz’s servicer – but rather to the $25 billion mortgage servicing settlement that Bank of America and four other servicers agreed to this spring.  The largest mortgage relief effort in history, the settlement provides $17 billion in consumer relief and billions more to states that can be used for proven anti-foreclosure efforts like housing counseling.  It also creates tough new customer service standards that require servicers to put an end to the kind of behavior faced by Ms. Diaz.

However, from Goodman’s piece, the reader is left to believe that the settlement has failed before it has even fully taken effect.

Not only does the piece fail to cite any of the homeowners who have already received significant relief through the settlement, it isn’t until the fourteenth paragraph that the article even mentions that the new servicing standards designed to protect Ms. Diaz and others from the abuses documented in the article won’t be fully implemented until early-October – when the settlement requires the banks to fully comply with more than 300 specific servicing standards.

The story also fails to include several key facts about the settlement that will help homeowners like Ms. Diaz going forward:

First, the article makes no mention that the new standards will require servicers to send a representative to foreclosure proceedings with “appropriate access to information from Servicer’s books and records necessary to perform their duties,” and to further “ensure that foreclosure and bankruptcy counsel and foreclosure trustees have an appropriate Servicer contact to assist in legal proceedings and to facilitate loss mitigation questions on behalf of the borrower.”  Where Ms. Diaz and her housing counselor were stuck working with a bank representative who clearly was unfamiliar with her case, its status or history, under the settlement, after October 5th, servicers will have an obligation to make sure that this practice is ended once and for all.

Second, the article fails to note that the settlement forces servicers to provide a single point-of-contact for homeowners like Ms. Diaz and their representatives so they can speak with someone at the bank who will not only have knowledge of their account, loan status and requests but also make sure a homeowner receives all the information they need to make an informed decision about their modification options.   Specifically, the settlement states that the “Servicer shall establish an easily accessible and reliable single point of contact for each potentially-[modification] eligible first lien mortgage borrower so that the borrower has access to an employee of Servicer to obtain information throughout the loss mitigation, loan modification, foreclosure processes.”  Just last month, all five servicers in the settlement reported to the independent monitor that they have implemented this important standard for their operations going forward.

If these specific terms from the settlement seem to have been written with Ms. Diaz’ problems in mind, it is because they were.  State Attorneys General and the U.S. Trustees involved in bankruptcy proceedings have seen this scenario occur far too often and they collaborated to craft language directly responsive to those issues.

Third, little is mentioned about Joe Smith, the independent settlement monitor who, once a servicing standard is implemented, has the authority to penalize banks that fail to uphold it.  Under the settlement, Joe has resources that the banks are obligated to provide above and beyond the $25 billion that allow him to oversee their implementation of all of the servicing standards and consumer relief provisions in the settlement.  If a bank fails to meet the settlement’s requirements in a particular area, Joe can impose millions of dollars in fines and penalties.  Finally, Joe, the Department of Justice or any one of the 49 state attorneys general can take them back to court for non-compliance if necessary.  More information about the Monitor’s extensive authority can be found at www.mortgageoversight.com.

Fourth, almost none of the other progress the Administration has made to help homeowners is included – from the significantly shortened time it takes for families to receive a modification through the Home Affordable Modification Program (HAMP), to President Obama’s fight to not only create the Consumer Financial Protection Bureau (CFPB) to protect ordinary families, but also recess appoint Richard Cordray as its director.  Indeed, just this week the CFPB took a critical step toward setting uniform servicing standards for the entire mortgage market with a proposed rule which would provide additional clarity for families struggling to keep their homes and ensure that homeowners who are current on their mortgage aren’t victimized by the kinds of processing errors that have harmed so many families.  Specifically, the CFPB announced that mortgage servicers will now be required to help homeowners in default avoid foreclosure by connecting them with staff dedicated to help them avoid foreclosure.

Finally, while Goodman details the frustrating story of Ms. Diaz, when he declares the failure of the settlement he completely ignores the homeowners across the country who have already received real relief as a result of the settlement – including those who have seen the balance they owe on their mortgage reduced by tens, and in many cases hundreds, of thousands of dollars.

Homeowners like Milagros Rodriguez of Miramar, FL who fell three months behind on her mortgage when her husband fell seriously ill. It was only because the settlement reduced the principal balance of her loan by $104,000 — and monthly payments by more than $650 — that she was able to keep their home while he recovered.

Homeowners like Sabrina Lacy – a single mother, retired nurse and Army veteran from Long Island who fell behind on her mortgage payments after an injury she suffered while deployed left her unable to work.  Because of the settlement, her servicer reduced the principal balance on her loan by more than $215,000 – giving her peace of mind and financial security she needs to support her family and serve her community.

The banks aren’t helping these families out of the goodness of their hearts.  Rather, it’s because the broad range of efforts across the Administration, including the settlement, have established clear requirements, incentives and penalties that have started changing their behavior.  As housing counselors I’ve met are telling me, while there is still much work to be done, servicers are responding quicker and providing help faster.

Obviously, the settlement won’t solve all of housing problems overnight, and I recognize the skepticism some may have about whether or not the banks will live up to their obligations .  But for me, the story of Katie Diaz and the countless others like her does not suggest that the settlement is failing – but rather the importance of holding the banks’ feet to the fire in the months to come.

With tough new standards soon to be in place—and an Independent Monitor with the authority to enforce them—I’m confident we will.

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