Big bank fails two mortgage settlement tests

by MPA17 Dec 2014
Bank of America has failed two of 31 mortgage settlement tests aimed at seeing whether the bank is complying, according to a report from an independent watchdog. The failed tests include sending pre-foreclosure letters to borrowers and notifications to people seeking mortgage modifications.

The report from Monitor Joseph Smith measures compliance of mortgage servicers involved in a 2012 settlement with the U.S. Justice Department and 29 state attorneys general. The settlement required the country’s five largest lenders to pay a total of $25 billion to customers in the form of short sales or loan forgiveness and improve their servicing standards.

Results from the test means Bank of America has to implement a plan to correct the behavior. If the bank fails tests on the same metrics again, it could face penalties, according to the Charlotte Observer.

In an interview with the Observer on Monday, Smith attributed Bank of America’s failure of its two tests in part to changes the bank had to make internally to comply with the Consumer Financial Protection Bureau’s new mortgage servicing standards, which took effect in January during the latest testing period.

He said the bank was required to modify its IT systems to reflect the new rules, but updating a system leaves room for mistakes. “The fact that they had to ... revise their systems created the opportunity for error.”

Citigroup was the only other lender in Tuesday’s report to fail a test.