Oct. 2 (Bloomberg) -- Wells Fargo & Co. was sued by New York state over claims the bank failed to uphold terms of a $25 billion mortgage-servicing settlement aimed at helping distressed homeowners avoid foreclosure.
Wells Fargo and Bank of America Corp. were accused by New York Attorney General Eric Schneiderman of violating the provisions of the national accord by continuing to impose unnecessary delays on borrowers seeking to modify the terms of their loans.
Schneiderman filed the suit today in federal court in Washington in the form of a motion to enforce the settlement against San Francisco-based Wells Fargo. Bank of America has agreed to changes aimed at bringing the Charlotte, North Carolina-based lender into compliance with the deal, Schneiderman said at a press conference in Manhattan.
“We’re here because we need some extra help from the banks to make sure the national mortgage settlement is doing what it is intended to do,” Schneiderman said. The banks took “radically different courses” in response to the attorney general’s efforts, he said.
In 2012, a coalition of 49 states and the U.S. reached the settlement with five of the country’s largest mortgage servicers, Wells Fargo, Bank of America, JPMorgan Chase & Co., Citigroup Inc. and Ally Financial Inc., in an effort to stop abuses such as “robosigning” of documents used in foreclosure proceedings and to lower barriers to modifications of loans.
Wells Fargo is one of the most difficult banks for distressed homeowners to deal with, Schneiderman said at the press conference. The bank sends “incomprehensible communications” to borrowers, he said, reading aloud from an April letter sent by the bank to an upstate New York homeowner that stated “urees are present on 2011 taxes IAO $4250. Is B1 claiming ureeduring the year? If so, how much per pay period.”
After months of discussions with both banks, Wells Fargo “refused to acknowledge there’s a problem,” Schneiderman said.
Vickee Adams, a spokeswoman for Wells Fargo, said yesterday in a statement that “it is very disappointing that the New York attorney general continues to pursue his course, given our commitment to the terms of the national mortgage settlement.”
“Wells Fargo is proud of its track record of providing important relief to borrowers in New York and nationwide,” she said, describing the company as a “leader in preventing foreclosures, helping families maintain homeownership with more than 880,000 modifications nationwide and 26,000 in New York over the last four years.”
Adams said that the bank has modified six loans for every foreclosure sale in New York since the beginning of 2009. The bank has found it has been able to avoid foreclosure for 75 percent of New York borrowers who seek modifications after falling behind by one or two mortgage payments, she said.
Dan Frahm, a Bank of America spokesman, said yesterday the bank was pleased to resolve the issues raised by Schneiderman’s office without litigation.
“We’re pleased with the significant assistance Bank of America has extended, and continues to extend, to homeowners through the national mortgage settlement and we will continue working with attorneys general nationwide to continually improve the experience for customers eligible for these important programs,” Frahm said in an e-mail.
The practices Bank of America agreed to change to bring itself in line with the settlement apply in New York only, although the bank is expected to try to expand those reforms nationwide, Schneiderman said.
Under terms of the national deal, the banks agreed to streamline processes for distressed mortgage borrowers seeking to modify loan terms, among making other reforms. The deal also provided monetary relief for homeowners.
“The New York attorney general’s action is welcome news for homeowners who at best get the run-around and at worst lose their homes because Wells Fargo refuses to act in good faith,” said Brian Kettenring, executive director of Campaign for a Fair Settlement, an organization that advocates for accountability from big banks for their role in the financial crisis.
“Wells Fargo was particularly aggressive in targeting communities for predatory lending before the crash and has been singled out by community groups as one of the worst perpetrators of unnecessary foreclosures,” he said in a statement.
In June, a monitor for the national settlement reported that some of the banks, including Wells Fargo, had failed to comply with servicing standards mandated by the deal, according to Schneiderman’s office.
Schneiderman announced plans to sue Wells Fargo and Bank of America in May over their alleged lack of compliance with the deal, and notified the national committee overseeing the settlement of his complaints.
The committee of state and federal officials declined to pursue legal actions against the banks and said in a June letter that an oversight process under the settlement “will be the most efficient path to improving services to borrowers -- and, we believe, will bring about those reforms more quickly than protracted litigation on these particularly issues.”
Joseph A. Smith Jr., national settlement monitor, said today in a statement that he issued four new tests for measuring banks’ compliance with the settlement’s standards to “better hold the banks accountable to the commitments they made in the settlement to improve their operations in these areas.”
Iowa Attorney General Tom Miller, lead state negotiator for the national settlement, said in a statement today that the new metrics “will help the settlement monitor, state attorneys general and our federal partners put more pressure points on the banks to ensure they’re addressing our continued concerns.”
Under terms of the settlement, states can file their own enforcement actions against banks if the committee declines to pursue litigation, Schneiderman said. Bank of America had disagreed, saying he had no right to sue the bank under the settlement because it hadn’t failed to comply with certain predetermined metrics.
Schneiderman was removed from a leadership role in negotiating the nationwide foreclosure settlement in August 2011 because his office “actively worked to undermine” the effort, Miller said in a statement at the time. Schneiderman worked to ensure the settlement wouldn’t bar further investigations of mortgage practices by individual states.
Among making other changes to conform to the settlement, Bank of America agreed to designate high-level staff with decision-making authority to help resolve loan-modification requests, redesign letters to borrowers to improve clarity, and stop transferring mortgage servicing rights to third parties amid loan-modification negotiations, according to Schneiderman’s office.
The changes will help fix a “byzantine process,” Schneiderman said today.
The case is U.S. v. Bank of America Corp., 12-00361, U.S. District Court, District of Columbia (Washington).
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