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U.S. Mortgage Accord Monitor Finds Servicers Missing Goals

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Dec. 4 (Bloomberg) -- The largest U.S. mortgage servicers, including Citigroup Inc. and Bank of America Corp., must do more to improve handling of delinquent home loans, according to a court-appointed monitor overseeing an accord with the firms.

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

“We are determining that there are some shortcomings,” Smith said in a telephone interview. “Banks are addressing them with corrective action plans, and I’m happy about that.”

The problems often result from technological errors “that cause a particular bit of information not to be put in the right place,” said Smith, who served as North Carolina’s top bank regulator before being appointed as settlement monitor. Loan servicers covered by 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 modifications, a process known as dual tracking that is forbidden under the accord.

‘Extremely Concerned’

“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 the 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.

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, excluding Oklahoma. 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.

To contact the reporter on this story: Clea Benson in Washington at cbenson20@bloomberg.net

To contact the editor responsible for this story: Maura Reynolds at mreynolds34@bloomberg.net

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