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Illinois Says Banks to Improve Loan-Modification Process

Bank of America Corp. and the four other biggest U.S. mortgage servicers will put in place new procedures to improve the process for borrowers to seek loan modifications, Illinois Attorney General Lisa Madigan said.

Those new procedures are intended to remedy problems with the implementation of a $25 billion, 49-state accord last year with Bank of America, Wells Fargo & Co. (WFC), Citigroup Inc., JPMorgan Chase & Co. (JPM) and Ally Bank, that settled allegations of widespread “robosigning” of legal documents and other fraudulent practices, Madigan said today in a statement.

“The bank servicing standards established in the national settlement were supposed to eliminate headaches for borrowers, but homeowners continue to report problems,” Madigan said.

Today’s agreement requires the lenders to give homeowners 30 more days to respond to requests for additional documents before their homes can be referred for foreclosure or sale, the attorney general said.

The banks also said they would increase their oversight of those representatives communicating with borrowers about the status of loan modification applications, she said.

San Francisco-based Wells Fargo and Charlotte-based Bank of America agreed to additional strictures including provision of an “escalation process” for borrowers encountering compliance difficulty.

Wells Fargo faces an enforcement action tomorrow for allegedly violating terms of the 2012 pact in New York, a person familiar with the matter said.

The action, in the form of a motion to compel compliance with the agreement, is to be filed by New York Attorney General Eric Schneiderman in federal court in Washington, said the person, who asked not to be identified because the matter isn’t public. A federal judge in Washington approved the $25 billion agreement last year.

The Washington case is U.S. v. Bank of America Corp. (BAC), 12-cv-00361, U.S. District Court, District of Columbia (Washington).

To contact the reporter on this story: Andrew Harris in federal court in Chicago at aharris16@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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