Monitor Finds Banks in Mortgage Settlement Miss Goals

The largest U.S. mortgage servicers, including Citigroup Inc. and Bank of America Corp., still need to improve their handling of delinquent home loans, according to a court-appointed monitor.

The banks subject to the 2012 national settlement over botched foreclosures failed in many cases to provide timely or adequate notifications to borrowers in various stages of the loan-modification or foreclosure process, the monitor, Joseph A. Smith Jr., said in a report released Wednesday. The document covers the banks’ activity during the first half of the year.

“The banks are all taking action to address the failures through detailed corrective action plans,” Smith said in a statement. “The banks still have additional work to do in their efforts to fully comply with the national mortgage settlement.”

Lenders subject to the settlement also include Ally Financial, Wells Fargo & Co. and JPMorgan Chase & Co.

Smith in October began additional monitoring to determine whether the banks are improperly foreclosing on borrowers while simultaneously considering them for loan modifications, a process known as dual tracking that is forbidden under the settlement terms.

“I have been extremely concerned to hear about ongoing dual-tracking issues,” Smith said in the report. “I am hoping that the new metrics will have meaningful impact on how he servicers treat their customers.”

Smith made the changes after hearing from borrower advocates and attorneys general that banks were flouting the spirit of the settlement by repeatedly asking for additional paperwork from borrowers seeking loan modifications and then foreclosing while treating the applications as incomplete.

Mortgage servicers who violate the rules or the terms of the deal could face sanctions including fines of $1 million per infraction.

The banks were required to meet new servicing standards as part of the settlement with the U.S. Justice Department and attorneys general from 49 states. Federal and state authorities probed foreclosure practices after disclosures that banks used faulty documents to seize homes.

Smith can take the banks back to court for further sanctions if they repeatedly fail in the same area after an improvement plan is implemented.

The servicers were additionally required to provide $25 billion to consumers in the form of loan forgiveness or short sales, in which lenders agree to allow homes to be sold for less than the mortgages against them.

Smith filed a report in October saying the banks were almost finished meeting their obligations under the settlement.

For the servicing review, which includes measurements during the first half of 2013, 270 workers spent 97,000 hours testing the banks, Smith said.

Reviewers found that Ally was the only bank that didn’t fail any metrics during the test period.