By David Dayen, a lapsed blogger, now a freelance writer based in Los Angeles, CA. Follow him on Twitter @ddayen
Joseph Smith, the National Mortgage Settlement Oversight Monitor, created four additional servicing metrics on Wednesday, in what has to be seen as an admission of what we’ve known for a good while – that the servicers are violating the spirit, if not the specific terms, of the settlement.
In particular, servicers have been denying a prompt decision on a loan modification for borrowers, as well as the ban on dual tracking, by never completing any loan modification applications. Here’s the statement from Smith:
These four new metrics address a number of persistent issues involving the loan modification process, single points of contact and billing statement accuracy. They will better hold the banks accountable to the commitments they made in the Settlement to improve their operations in these areas. In particular, I have been extremely concerned about ongoing dual tracking issues. One of the metrics will address the issue of when a loan modification application is considered ‘complete,’ which has led to some of these problems.
First of all, in one paragraph, Smith names just about every important consumer protection put into the settlement as among the “persistent issues.” Being on the payroll and all, Smith isn’t going to come out and say it, but he’s acknowledging failure. If servicers aren’t offering a single point of contact (I know Yves questioned whether they ever can), aren’t ending dual tracking, aren’t posting accurate billing statements (!) and aren’t giving loan modifications in a timely and efficient manner, then they basically haven’t skipped a beat since the misconduct that was part of the impetus for the settlement in the first place.
The “completed” application issue is a classic example of getting around the rules. I wrote about this for The American Prospect three months ago, based on a report from the great Katherine Porter, UC-Irvine law professor and the California monitor of the settlement (Kamala Harris may have gone along to get along with the whole scheme, but she did right by getting her own state monitor and by hiring Porter):
This discrepancy between homeowner complaints and bank pleas of innocence can perhaps be explained by a gap in the settlement’s dual-tracking language, which mirrors other state and federal rules for servicers. The restrictions state that servicers cannot pursue foreclosure once a homeowner turns in a “completed” application for a loan modification. However, the rules do not meaningfully define “completed.” Does this mean the initial delivery of forms and financial documents? Do all documents have to be authorized by the bank? What if documents are lost? What if servicers are missing just one piece of information? It sounds wonky, but banks have exploited these ambiguities for financial gain, and it has led to people losing their homes [...]
A typical loan-modification application includes a standard form, authorization for the release of tax returns, and documents showing evidence of income, like recent pay stubs or a profit-loss statement. Banks require financial documents from homeowners to determine what would make an affordable modified mortgage payment. If a homeowner has a straightforward financial situation, with a single employer and relatively few outside sources of income, collecting financial documents is relatively easy. But lots of people have complex income situations—second jobs, income from renters on their properties, small businesses. The more multifaceted the income sources, the more information a bank will require.
Porter’s report tells the story of “Peggy B.,” who lost her home to foreclosure last November. Peggy was in the process of collecting documents when her home was sold. The bank told her that the sale would be postponed while she complied with requests for documents, but they sold the home anyway. Porter’s office contacted the bank, and “it informed us that Peggy’s application was missing documents at the time of the sale … because her application was not complete, the bank had not violated the dual-tracking protections in the settlement.”
It’s just a typical case of going around to the side door when the front door is locked.
The new metrics apply to all five servicers in the settlement, meaning that they’ve all been using tricks like this repeatedly. Here’s the draft of the Bank of America metrics. One strengthens the single point of contact language, and one confirms the accurately of monthly billing (and seriously, if this is a problem, you can give up and put this industry out of business now). Those go into effect in January.
The final two “will test the banks’ communications to borrowers of the requirements of a loan modification application, ensure that the banks do not reject a borrower’s loan modification application or proceed with a foreclosure for at least 30 days while the borrower is responding to requests for additional documents, and for those borrowers whose applications are denied, confirm that the banks properly communicate that denial and the loss mitigation alternatives available to the borrower.” But Porter was attuned to these issues about “completed” applications, and had a solution, at the beginning of July. Not only did it take Smith and the Monitoring Committee three months beyond this to come up with a metric, but it won’t even go into compliance testing until APRIL 2014! That’s over two years after the initial servicing standards went into effect. Keep in mind that the settlement is only effective for three years. So that means that Joseph Smith let the banks basically ignore their servicing standards, which were supposed to be a penalty for inappropriate behavior, for over 2/3 of the duration of the settlement. It’s abominable.
And in case you were wondering, yes there are “threshold error rates” with these new metrics! All four of them have an acceptable error rate of 5%, meaning that servicers can inaccurately bill their customers in 1 out of every 20 cases and face no sanction under these standards. And really it’s much worse than that, since (as I noted for Salon in May) the banks supply the initial compliance reports, the monitor merely services their work, and the services have the right after the fact to appeal any findings of non-compliance.
(If you want a straight news story on the metrics that includes none of these issues, the Wall Street Journal has you covered.)
I suppose Smith had to do something, with AGs across the country fielding all these complaints from homeowners that their servicers continue to screw them (Eric Schneiderman put together a show horse lawsuit against Wells Fargo while settling with Bank of America for really nothing). But this action sets a new standard for “the least you can do.” If there were a way for the government shutdown to stop Smith’s work, I don’t think anybody would even notice.