A year ago, a $25 billion settlement ordered banks to do a better job helping troubled homeowners, and to end the stories of borrowers trapped in a confusing web of mortgage negotiations leading to foreclosure.
The stories, however, keep coming, even as banks take their required steps to improve how they handle homeowners in distress.
One of the most widely criticized practices was dual-tracking, in which banks pressed ahead with foreclosure proceedings while borrowers scrambled to get their loans modified.
The settlement was supposed to change that. The architects of the deal with Bank of America, Wells Fargo and three other major banks said the agreement would give troubled borrowers every opportunity to modify their loans before facing foreclosure.
But the rules spelled out in the settlement give banks the latitude in many cases to move toward a foreclosure sale even as they work with borrowers trying to save their homes.
Banks can send foreclosure notices and schedule court hearings and eviction dates all while a homeowner is filing paperwork for a loan modification.
The settlement did force some improvements: Banks cant actually sell the home while a modification is pending. And they cant start foreclosures against borrowers who seek help soon after becoming delinquent.
Still, the rules mean homeowners in North Carolina and around the country can end up planning for foreclosure hearings while trying to work with their banks. Advocates and lawyers tell of borrowers having to juggle legal notices, loan modification applications and a search for a new place to live at the same time.
They think their loan is going to be modified. Theyre told not to worry about the pending foreclosure action, said Mal Maynard of the Wilmington-based Financial Protection Law Center. At the last possible minute, they learn that they will not get a modification and are thrown off the cliff into foreclosure.
The thought behind the provision is to give a borrower full and fair consideration for a loan modification before beginning the foreclosure proceeding. They are often deprived of that opportunity.
Both Bank of America and Wells Fargo say they are doing everything the settlement requires. Executives at both banks say their mortgage servicers repeatedly try to reach out to delinquent borrowers before referring a loan to foreclosure.
Randy Bockenstedt, senior vice president in customer contact and collections at Wells Fargo Home Mortgage, said he still believes borrowers have every opportunity to get a loan modification before facing foreclosure. He said many complaints about dual-tracking come from confusion about what the settlement requires and does not.
We dont stop working with a borrower just because theyve been referred to foreclosure, he said.
That is a real problem
Janet Menetrier was surprised to be served a foreclosure notice on her Charlotte home in early December, just three months after Bank of America promised her a loan modification over the phone. The next month, she found three letters from the Charlotte bank in her mailbox.
The first said she was being considered for a loan modification on the home shed been battling for nearly six months to save from foreclosure.
The second said the bank needed more information to process her application.
The third said shed been denied for all loan modifications.
Each letter bore the same date, Jan. 12. And her foreclosure hearing had already been set for just three weeks away.
I thought they were supposed to make things better and easier, Menetrier said as she spread reams of paperwork across her kitchen table. What theyre doing is just wrong.
North Carolina Attorney General Roy Cooper, one of the chief negotiators of the settlement, said complaints to his office on servicing standards have gone down over the past year, but his office was unable to provide specific numbers.
We think things are significantly better, and it makes sense that they are, he said in an interview. But he said he was surprised to hear of some of the complaints the Observer had received, such as Menetrier receiving three conflicting letters from Bank of America on the same day.
If that is going on, Cooper said, that is a real problem.
Hundreds of complaints on the topic have been funneled to Joseph Smith, the former North Carolina commissioner of banks who now serves as the settlements monitor. He confirmed to the Observer that the lingering examples of dual-tracking have been an area of discussion between him and the five banks in the settlement but declined to elaborate.
I have heard from the consumers and consumer professionals who are concerned about dual-tracking, he said in an emailed statement. I will use the enforcement powers I have under the settlement to address those concerns.
Denied at the last minute
Joyce Reid said she found the process of trying for a loan modification hopelessly confusing.
Reid moved into her Mount Holly home in 2005 but ran into trouble after the financial crisis when she lost her job and went through a divorce. She worked for three years toward loan modifications with Bank of America, which serviced the loan. But she says the bank told her the modifications fell apart when the investor who owned the loan rejected the terms.
The sheriffs office served her with foreclosure papers in December and set a foreclosure date for March 25 and an eviction date for April 20, though she is still working with the bank through a trial loan modification.
Now shes facing down Mondays court date while trying to keep up with her new payments.
I got the foreclosure papers and the modification papers at the same time, Reid said. Which one is right?
Bank of America told the Observer it has suspended Reids foreclosure during the modification. Reid said the bank told her to disregard the foreclosure proceedings and not to worry about the court date. But she hasnt received any notice that the date has been moved, so she plans to go to court anyway.
Im waiting on pins and needles, she said. I havent been sleeping well. Im trying to tell myself not to worry about it. Ive done everything I could do.
State attorneys general negotiating the settlement originally wanted strict rules that banned all forms of dual-tracking. But after negotiations with banks and investors, the less stringent rules were agreed to as a compromise, said Iowa Attorney General Tom Miller.
Investors such as Fannie Mae and Freddie Mac, the government-sponsored entities that own nearly half of U.S. mortgages, were concerned that a tight ban on dual-tracking would cause foreclosures to drag on too long. During negotiations for the settlement, a federal housing regulator told a U.S. Senate panel that banks should intervene early to help troubled borrowers and if that failed, they should be able to keep a foreclosure moving.
Once the foreclosure process does start, I do think that there is a responsibility to be moving that along, said Edward DeMarco, acting director of the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, according to a Senate transcript.
We need to improve
Smith, the settlement monitor, has received more than 6,300 complaints on all aspects of the settlement in the year since the accord was announced. Thats just a fraction of the roughly 3 million delinquent mortgages potentially covered under the settlement.
But as of the end of 2012, complaints had come from all 50 states, and between November and February the volume of complaints increased from 550 per month to 830 per month. Smith has said he hears of issues such as dual-tracking whenever he meets with housing counselors.
Its a significant point of concern to me, Smith told the Observer. Do people get a clear sense of the rules of the road when they attempt to get relief from banks?
The public will know more about the banks servicing performance in late spring, when Smith files his first report on compliance with the federal court overseeing the settlement. If a bank is in violation of one of the terms of the settlement, Smith can ultimately impose fines. He does not have the ability to write new rules but can create new ways to measure compliance if Smith believes a provision, such as dual-tracking standards, is being violated.
We need to improve; I know we do, Smith said. The tools we have will begin the process. If we need to do more, well do more.