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Wednesday, February 20, 2013

National Mortgage Settlement & CFPB Monitoring of Loan Transfers

National Mortgage Settlement and the Consumer Financial Protection Bureau's Monitoring of Loan Transfers


Are National Mortgage Settlement defendants transferring mortgage loans to other servicers in an attempt to avoid their obligations under the NMS?

As an attorney who represents mortgage loan borrowers and homeowners, I am sensitive to the needs, complaints, and fears of my clients. Lately, many clients have had their mortgage loan servicing transferred from Bank of America to other servicers, including Specialized Loan Servicing and NationStar, and they are worried that these transfers may prevent them from obtaining mortgage relief pursuant to the National Mortgage Settlement (sometimes referred to as the "DOJ Settlement"). The Consumer Financial Protection Bureau, a newer Federal agency, appears to be concerned as well.


Mortgage Loan Modification


The National Mortgage Settlement ("NMS") was between the Federal Government, 49 of the 50 States (Oklahoma did not participate), and Bank of America, Citibank, GMAC/Ally Financial, JP Morgan Chase, and Wells Fargo Bank. The NMS was supposed to establish new mortgage loan servicing and foreclosure standards for many loans, provide greater protection for the rights of borrowers, and provide compensation and assistance to homeowners. Compliance by the 5 largest mortgage loan servicing banks has been spotty.


The National Mortgage Settlement is primarily governed by the "Consent Judgments" on file with the United States District Court for  Washington, D.C. These judgments (300 pages or so each) represent the terms of the settlement agreement between the governments and the above named banks. According to the NC Department of Justice, the settlement was intended to provide "as much as 338 million in assistance to North Carolina consumers by reducing principals and refinancing mortgages at lower interests." The Settlement came about due to evidence of widespread fraudulent activities by these mortgage loan servicers, including wrongful foreclosures and the disregard of proper mortgage loan modification processes.

Foreclosure Hearing

 

The terms are not always clear, and the implementation of the goals of the Settlement are even more challenging. One major problem which has arisen is how and whether the terms of the NMS apply to loans which were owned and/or being serviced by one of the defendants as of the time of the settlement, but have now been transferred to a new owner or servicer. In fact, there have been so many loans transferred lately - many more than usual - that the Consumer Financial Protection Bureau has formally announced that it will be closely monitoring the situation. The CFPB has identified three (3) main issues it will focus on:


  1. How a transferor servicer has prepared for the transfer of servicing rights and/or responsibilities.

  2. How a transferee servicer handles the files transferred to it.

  3. For loans with loss mitigation in process (e.g., pending loss mitigation applications, trial modifications, forbearance plans, or short sale/deed-in-lieu agreements), what policies the transferor and transferee implemented, including what procedures they adopted to ensure proper consideration and treatment of the mortgage relief applications.


In my firm's communications with the formally appointed Monitor of the National Mortgage Settlement, former North Carolina Commissioner of Banks Joseph A. Smith, Jr., he has indicated that outward transfers of loans by NMS defendants is a major concern of his and of the Office of Mortgage Settlement Oversight. Mr. Smith acknowledges that there are many questions, and not all of them have easy or clear answers. Unfortunately, his Office does not have the power to intervene in specific cases, or to directly force Bank of America, Chase, CitiBank, GMAC/Ally Financial, or Wells Fargo to comply with the Settlement terms.


We remain hopeful, but not necessarily optimistic that the NMS will prove to be the game changer it was meant to be. It has clearly helped many borrowers, but will it help enough?