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February 17, 2012

What the robo-signing settlement means for all borrowers

If you're not in trouble on a mortgage and didn't lose your home to foreclosure in the last few years, you might think the national settlement between state attorneys general and big mortgage servicers has nothing to do with you.

But the settlement includes a 42-page directive intended to broadly improve mortgage-servicing practices, which critics contend are the pits.

Though the settlement applies only to the big players that signed on (Wells Fargo, Bank of America, Citigroup, JPMorgan Chase and Ally Financial/GMAC), the Maryland attorney general's office says the federal government could eventually make all federal institutions play by these servicing rules.

Here's a taste of what they require:

o Better handling of borrowers' payments. Servicers must "promptly" record payments and post them within two days. If a borrower makes almost all of a scheduled payment -- within $50 of the amount due -- then the servicer must apply it and at least one more such payment to the mortgage, rather than shunting it to a "suspense account" and letting interest and late fees mount.

o More rules about suspense accounts. When payments are put in such accounts, servicers must tell the borrower and apply money from the account to the mortgage as soon as there's enough there for a full payment. They must not sap the money with their own fees until all principal, interest and escrow amounts are paid.

o More disclosure to borrowers. Monthly bills must note not only the amount due but how payments have been allocated, how much principal is left, what fees and charges have been added and how much is left in escrow. If payments are due to change, servicers must give the reason three weeks in advance.

o "Force-placed" insurance reform. This type of insurance, purchased by the servicer and charged to the homeowner, is supposed to protect the asset when the borrower's own policy has lapsed. But it's far more expensive than a regular policy. Homeowners have complained that their servicers stuck them with it when their normal policy was already in place and refused to remove it, putting them behind or digging the hole deeper.

The new force-placed rules state that servicers cannot get force-placed insurance unless they have actual cause to believe there's no policy protecting the home. If homeowners make escrow payments to cover the insurance policy, servicers must forward them to the insurer even if the borrowers are behind on their mortgage payments. Servicers must accept as proof of insurance "any reasonable form of written confirmation of coverage," and if they do force-place, the cost itself must be reasonable.

No fee shenanigans. Servicers can't collect late fees while they're considering a loan modification or short sale or when borrowers are making prompt trial payments toward a modification. They can't charge unreasonable default fees, including pass-throughs from attorneys, and they must disclose everything in detail. And they can’t keep repeatedly dinging homeowners for "inspection fees," broker price opinions and the like.

o Better loan-modification efforts. The agreement includes a requirement for an "easily accessible" single point of contact for borrowers seeking help so they're not starting over with someone new every time they call, as has happened for years. The rules are also designed to avoid the so-called "dual track" of one division working with a homeowner on loan modification while another simultaneously pushes toward auction at the courthouse steps.

o No blight. Servicers have to keep repossessed properties from falling apart and hurting neighborhoods. They have also agreed to "enhance" participation in local efforts such as land banks and community redevelopment.

o No more robo-signing -- of course, since that touched off the entire inquiry. The term refers to people signing court affidavits to allow foreclosure without even reading the documents, let alone having any idea whether the information is right. Faked signatures (Joe Schmoe signing as John Q. Public) and false notarizations were common, according to court depositions.

The new rules say servicers may not use inaccurate affidavits to get the OK to foreclose, must require their signers to review the records before putting ink to paper, must give staffers enough time to do the job properly and cannot pay incentives to anyone -- including contractors -- to reward affidavit-processing speed.

David Paulson, a spokesman for the Maryland attorney general, call the servicing rules "the unsung section" of the settlement agreement. "I know the AGs are very proud of this," he said.

Here's a summary of all the rules. I'm quoting from that. (The full 42 pages probably won't be public until the settlement is given the OK in federal court.)

The Maryland attorney general's office has details for borrowers here, including general information and a Q&A. The staff's suggestion to homeowners hoping they might qualify for help: Contact a nonprofit housing counselor.

Paulson says former homeowners who were foreclosed on might want to touch base with their servicer. "Finding you might be difficult," he said. "We’re kind of encouraging everybody to start this process by contacting the bank and letting them know where you are, at least."

Oh, and one more link: Here's the national site about the settlement.

What do you think?

Posted by Jamie Smith Hopkins at 6:00 AM | | Comments (5)
Categories: Mortgage servicing, Mortgages, The foreclosure mess


Most of this would not be necessary if the courts were ruled by the verdict of a jury,
Just because there is no law against these shenanigans does not make them legal. An empowered jury would punish any bank that pulled this kind of crap as fraud. We need to stop judges from limiting what jury's can do. The verdict of the jury is supposed to be the law and no law is above the verdict. Think about it.

All anyone asks is to be treated fairly. It's a shame we need a giant government lawsuit to encourage or ensure this, but this is what America is today, it seems. Good deal.

Now the question remains: will MD shift the funds to the people in need, or will they, as has been done in some other states, use the money for budget shortfalls that have nothing to do with the housing issues.

Hi, scott -- I wondered the same thing myself, since a piece of the money is supposed to go to the general fund, so I asked the governor's office and attorney general's office. Both say they want the money to be used for homeowner help.

I'm definitely concerned with how this will shape the Baltimore housing market. The banks have withheld inventory since the middle of last summer and are about to open the flood gates. We'll likely see at least a dip in prices as the new REO properties again flood the market. If you're currently selling, you'll want to strike a deal quickly. If you're buying, you may want to wait a month or two for the prices to drop.

This massive fraud had 50 states attorney general at the Federal Reserve's door in 2005, after investigating as early as 2003.

What took so long to implement these mortgage laws, given that most of the fraud happened 2006-2007? The Maryland Attorney General and Governor had to wait until the banks finished getting all the money the could from the fraud. 2012 for fraud started in 2003...really?

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About Jamie Smith Hopkins
Jamie Smith Hopkins, a Baltimore Sun reporter since 1999, writes about the regional economy. Her reporting on the housing market has won national and local awards. Hopkins is a Columbia native and has lived in Maryland all her life, save for 10 months spent covering schools in Ames, Iowa.
She trained to become a wonk by spending large chunks of time as a geek and an insufferable know-it-all.
Baltimore Sun articles by Jamie

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