A new report says major lenders are still failing at servicing for distressed borrowers, and may put them at risk of retribution by the federal government.
Independent banking monitor Joseph A. Smith of the National Mortgage Settlement has reported that the country's largest mortgage servicers have failed eight servicing standards. Smith said compliance tests yielded three fails last year, and an additional five fails in 2013.
"These results demonstrate that the Settlement is allowing us to uncover areas in which more work needs to be done. The banks are now working to correct these errors and will be tested again to determine their level of improvement," Smith said.
Smith's team tested compliance with the National Mortgage Settlement's servicing rules, examining Bank of America, Chase, Citi, ResCap and Wells Fargo. Of the five banks examined, only ResCap passed every metric. Bank of America and Chase each failed compliance tests in two metrics, Wells Fargo failed in one metric and Citi failed across three metrics.
"These findings, combined with the complaints I have heard from attorneys general, counselors and distressed borrowers, tell me there is still work to be done. While I believe distressed servicing is better this year than it was last, it is not yet where it needs to be," Smith said.
HUD secretary Shaun Donovan echoed Smith's sentiment on the findings, saying that progress had been made in servicing distressed borrowers. But Donovan warned that some abuses of borrowers "shamefully endure".
"Most notably, these financial institutions consistently fail to send notices and communicate decisions to stakeholders in a timely manner. This is unacceptable."
Donovan also issued a stern warning to banks to lift their servicing standards.
"The five financial institutions are officially on notice; they must correct these problems and pass the Monitor's tests or the Obama administration, along with the bipartisan group of 49 state attorneys general we partnered with on this effort, will fine them up to $5 million for each failure or haul them back into court," he said.