The nation’s largest mortgage lenders are violating the terms of a punitive 2012 settlement that was meant to prevent unfair and unnecessary foreclosures that destroyed communities and pushed working families from their homes.
Interviews by POLITICO with more than 20 housing counselors, Legal Aid lawyers and government prosecutors in states hard hit by the real estate crisis that followed the 2007 financial meltdown reveal that the nation’s top lenders are violating the settlement and rules put in place last year by the Consumer Financial Protection Bureau. In some cases, the problems — repeated requests for the same documents, for example — stem from ongoing disorganization deep inside the loan servicing departments of the banks, but some homeowners and their representatives claim the issues are a deliberate attempt to use foreclosure to resolve cases that have lingered for years.
In 2012, as 49 state attorneys general and the Holder Justice Department announced the landmark $25 billion accord with five of the nation’s biggest lenders, North Carolina Attorney General Roy Cooper spoke for many when he declared: “If homeowners get the runaround for a modification, if homes are foreclosed before other options expire, the monitor and the courts can step in and make it right.”
The AGs were especially inflamed by stories of banks that continued to accept payments from financially strapped borrowers even as they quietly filed paperwork to take back the homes.
But the abuses haven’t stopped. Since the beginning of 2014, more than 60,000 complaints have been filed nationwide by borrowers about servicers rushing the foreclosure process or mishandling a modification request, according to POLITICO’s review of the bureau’s database. But the complaints likely underestimate the problem because most homeowners have no idea the database exists, according to counselors and attorneys. More than 469,000 U.S. homeowners are in some stage of foreclosure as of July, with another 1.3 million in serious delinquency, according to the most recent data from CoreLogic.)
The settlement was almost three years old when Kimberly Cook, a single mom in her 30s, walked into the local deed office in Washington, D.C., worried that after a year of haggling, Bank of America had changed its mind about renegotiating her loan. She had made months of reduced payments on a trial basis, but bank representatives were now telling her that she had improperly signed documents — she had failed to use her middle initial, for example — and that she had not submitted an obscure document that isn’t even required by other lenders. A clerk confirmed her fears, telling her that the bank had filed papers a month before in preparation for foreclosure.
“She said ‘you’re not the first person who’s come down here,’” Cook said. “I just lost it. I was just scared.”
Bank of America denies that it misled Cook, insisting that her inability to submit the proper paperwork was the reason for delays and aborted attempts to permanently reduce her loan. But Cook’s ordeal, which required an attorney to sort out, has the hallmarks of the runaround that prosecutors had vowed to crack down on.
The abuses by lenders continue, POLITICO has found, because the settlement deal was crafted in a way that limited oversight and gave banks a wide enough margin of error that they wouldn’t be held accountable if they continued their bad practices. Lawmakers are waking up to the consequences of the cushy deal, as are current and former state prosecutors who say that civil investigations are underway.
“There have been multiple settlements requiring banks to change their servicing practices,” House Oversight Committee top Democrat Elijah Cummings of Maryland said in an emailed statement, “but it is clear that abusive practices continue.”