The foreclosure fraud settlement absolves the 5 major banks from liability for robosigning and other practices. The breadth of this waiver of liability has yet to be conclusively established. In addition to the monetary penalties assessed, the banks have agreed to reform their loan servicing standards. We won't truly know all of the details until they are released. Given that documents like this press release have already leaked out, it would appear that the terms are not 100% in writing yet.
Many of these reforms are basically, "We will follow the law," but some are good steps forward. The "we will follow the law" reforms are still a net positive, but the banks agreeing to do what they should already be doing doesn't seem as emergent as some of the other reforms.
Here are some of the "follow the law" reforms:
- Affidavits must be personally reviewed and based on competent evidence.
- Banks must implement procedures to ensure accuracy of accounts and default fees. These procedures must include regular audits, detailed monthly billing statements, and enhanced billing dispute rights.
- Banks must adopt procedures to oversee the attorneys that they hire, their trustees, and other agents.
- Banks must maintain adequate levels of trained staaff to handle the demand for loss mitigation.
These reforms are ones that are already required by law (e.g. truthful and accurate affidavits) or ones that banks should already be doing.
Here are some of the reforms that I find to be a bit more progressive and thus worthy of more praise:
- Banks must disclose the identity of the actual holder of their loan (the entity with legal standing to foreclose) to the borrower. This ownership must be documented.
- Banks cannot proceed to foreclosure without first evaluating the borrower for all available loss mitigation options.
- Banks can no longer "dual track," which is the process of pursuing foreclosure while also considering the borrower for a loan modification.
- If a loan modification is denied, the denial must be automatically reviewed, and borrowers must be able to appeal the decision.
- Banks must send homeowners a pre-foreclosure notice that describes the available loss mitigation options, an account summary, a description of facts that supports the lender's standing to foreclose, and a notice that the homeowner may request a copy of the loan note and the identity of the investor that holds the loan.
- Banks must develop web portals where borrowers can check, at no cost, the status of their loan modifications.
- Banks must publically disclose the application and qualification information for any proprietary (in-house) loan modifications.
- Banks must assign a single individual point of contact for every borrower seeking a loan modification. This goes beyond being a specific phone number -- banks must designate a specific employee as the point of contact.
These measures, if followed, may actually reduce the number of homes entering foreclosure. It remains uncertain how the settlement will combat the financial incentive for a servicer to foreclose. It is also uncertain at this time how the appeals process for a denied loan modification will be handled. On the whole, however, these are some practices that should have been required by law.
Unfortunately, if your loan is not held or serviced by Bank of America, JP Morgan Chase, Wells Fargo, CitiGroup, or Ally/GMAC, then these settlement terms do not apply.
The settlement does provide for an independent monitor to oversee the bank's compliance with the settlement. Who that monitor will be has yet to be announced.