New York's attorney general has said he plans to sue major lenders Bank of America and Wells Fargo for violating a $25bn (£16bn) mortgage settlement intended to end foreclosure abuses.
A total of five US lenders agreed the National Mortgage Settlement with authorities last year, designed to reshape lending practices following the collapse of the US housing market.
Mr. Schneiderman says that Bank of America and Wells Fargo did not follow guidelines dictating how the banks field and process requests from homeowners trying to modify their mortgages.
Under the terms of the settlement, banks have to abide by 304 servicing standards, like notifying homeowners of missing documents within five days of receiving a loan modification and providing borrowers with a single point of contact.
“Wells Fargo and Bank of America have flagrantly violated those obligations, putting hundreds of homeowners across New York at greater risk of foreclosure,” Mr. Schneiderman said. Since October 2012, Mr. Schneiderman’s office has documented 210 separate violations involving Wells Fargo and 129 involving Bank of America.
The move by Mr. Schneiderman is the first time that an attorney general has readied a lawsuit against one of the five participating banks on charges related to the settlement, which was aimed at halting the housing market’s downward slump and doling out relief to homeowners in foreclosure.
The settlement emerged from an investigation into mortgage servicing by all 50 state attorneys general that began in 2010 after revelations emerged that banks had churned through foreclosures using robosigned documents, legal paperwork that was seldom reviewed for accuracy.
After the deal was reached in February 2012, Mr. Schneiderman’s office began receiving a deluge of complaints from housing counselors across the state. The counselors, Mr. Schneiderman’s office said, reported that homeowners were still wading through a bureaucratic quagmire.
Mr. Schneiderman set the potential penalty in motion on Friday when he sent a letter to the settlement monitoring committee, outlining his plans to penalize the banks. “I am writing to inform you about a persistent pattern of noncompliance,” Mr. Schneiderman wrote, according to the letter. The committee has 21 days to decide whether to initiate a lawsuit, or whether Mr. Schneiderman will pursue the action alone.
Bank of America and Wells Fargo said on Monday that they would take steps to handle the issues raised.
“Through March we have provided relief for more than 10,000 New York homeowners through the National Mortgage Settlement, totaling more than $1 billion,” said Richard G. Simon, a spokesman for Bank of America. He noted that “Attorney General Schneiderman has referenced 129 customer servicing problems which we take seriously and will work quickly to address.”
Wells Fargo, which has helped 70,000 homeowners through the settlement, is “committed to full compliance with the National Mortgage Settlement and its associated standards,” according to Vickee J. Adams, a Wells Fargo spokeswoman. She added that “it is unfortunate that the New York attorney general has chosen this route rather than engage in a constructive dialogue through the established dispute resolution process.”
Michael Farnsworth, who fell behind on his mortgage after a spinal injury prevented him from working, is among the New York residents claiming that their mortgage paperwork was not handled properly. After submitting a loan modification application to Wells Fargo on Feb. 22, Mr. Farnsworth said he returned home on March 6 to find a note affixed to his farmhouse in Corfu, N.Y.
The note was ominous, he said: Mr. Farnsworth had 48 hours to resubmit many documents, including tax returns, or his loan modification would be scuttled. Under the mortgage settlement, though, Wells Fargo was required to notify Mr. Farnsworth about missing documents five days after he submitted a loan application and to then give him 30 days to submit any missing documentation.
Wells Fargo declined to comment on Mr. Farnsworth’s case, citing customer privacy, but said that the bank “is doing everything we can to assist customers so that they can stay in their homes if possible.”
The servicing standards were intended in part to address delays that can torpedo efforts to save a home. Before the settlement, housing counselors said that homeowners were ensnared in a bureaucratic maze when seeking foreclosure relief. Some borrowers were asked for the same document multiple times, while others were shuttled from one representative to another. As their applications for relief languished, housing counselors said, borrowers accrued fresh costs, like late fees and property taxes, that aggravated their distress.
“The price of this paperwork delay can be thousands of dollars for homeowners,” Vera Cedano, a foreclosure defense lawyer with Western New York Law Center. “It can mean the difference between saving a losing a home.”
Deonarine Nareen, a 52-year-old restaurant employee in Queens, had fallen behind on his mortgage as he petitioned Wells Fargo for a loan modification, according to court records. Since Wells Fargo began foreclosure proceedings against him in 2010, Mr. Nareen said he had tried to win a reduced monthly mortgage payment, but had been asked for documents numerous times.
In the latest chapter, Mr. Nareen said he applied for a loan modification on Feb. 19, so he was surprised when he received a brand new application for a loan modification from Wells Fargo in March.