Mortgage Monitor Orders More Fixes to Banks' Foreclosure Practices

The monitor of the national mortgage settlement plans to force the five largest servicers to fix billing and communications problems that have plagued homeowners and been the subject of tens of thousands of complaints.

Joseph Smith, the monitor of the settlement, issued four new tests that the servicers will have to pass in order to comply with the terms of the 2012 agreement, which overhauled national servicing standards and required the servicers to provide $25 billion in relief to affected homeowners. The changes are a response to homeowner complaints about shoddy billing practices, poor communications and widespread dual-tracking, said Smith in a release Wednesday.

The tests will require the servicers to provide homeowners with a single point of contact at the company, and to put in place systems to monitor single-point-of-contact communications. The servicers will also be required to ensure that their monthly billing statements are accurate and comprehensive, that they do not reject a borrower's loan-modification request while the borrower is responding to requests for additional documents, and that they properly communicate to borrowers when a loan-modification request has been turned down.

The monitor has set new testing metrics that each of the five banks will have to meet. The testing will begin next year.

"I have met with attorneys general, counselors, other advocates, and distressed borrowers in 10 states over the past year," said Smith in a news release. "Time and time again, I have heard their ongoing frustrations with the loan modification process, single points of contact and billing and account statement issues."

Nevada Attorney General Catherine Cortez Masto, who is on the settlement's monitoring committee, said in a news release that the rules are intended to "help homeowners and hold banks accountable" for "not providing timely and effective assistance."

States have increased their pressure on servicers to comply with the 2012 accord, in response to complaints from homeowners. On Wednesday, New York Attorney General Eric Schneiderman sued Wells Fargo (WFC) for violating the settlement, claiming the lender has failed to reform its foreclosure practices and that it has been the subject of more complaints from New Yorkers than any other lender. New York also got Bank of America (BAC) to agree to reform its loan-modification process.

The Office of Mortgage Settlement Oversight received nearly 90,000 complaints through June 30 about servicers' failure to comply with the settlement. Most complaints dealt with poor communications or inaccurate billing or account information. In June, the national monitor cited B of A, Citigroup (NYSE: C) and JPMorgan Chase (JPM) for multiple violations of the agreement. Ally Financial, which is majority owned by the federal government, was the only servicer to meet all of the requirements of the settlement, the monitor said.