On Wednesday, October 2, New York Attorney General, Eric Schneiderman, filed a lawsuit against Wells Fargo.
The suit was based on the claim Wells Fargo has failed to meet the requirements of the $25 billion national mortgage settlement – the same settlement that did little to punish lenders or establish punitive measures for lenders who ignored the requirements.
Schneiderman threatened both Wells Fargo and Bank of America earlier in the year for moving slowly in processing homeowners’ requests for loan modifications. Bank of America agreed to work with Schneiderman to resolve the issues, but Wells Fargo refused to sign any agreement.
Schneiderman’s recent push comes on the same day a court-designated monitor added more tests to measure the extent to which lenders were complying with the settlement.
In June, the monitor released a study indicating some of the biggest lenders were not complying with the settlement’s requirements, including:
- Bank of America;
- JP Morgan Chase; and
- Wells Fargo.
If the lenders fail the new tests the monitor has put in place, the monitor may take them to court — though Schneiderman has beat them to the punch in the case of Wells Fargo.
first tuesday insight
New York’s AG’s lawsuit does not matter.
Most lenders, not just Wells, have failed to meet the requirements of the settlement. The monitor’s warnings have done little to sway lenders’ bad behavior. The monitor merely put more “tests” in place for the banks to fail and the monitor to wag their finger at.
First of all, the national mortgage settlement was a bad deal from the outset. Why? It provided minuscule relief to distressed homeowners. It did, however, reward lenders who avoided foreclosure, frequently prolonging the dire economic circumstances of the homeowner.
The terms of the settlement, which banks failed to meet, include:
- providing a single point of contact for homeowners;
- ending dual tracking where the owner is simultaneously considered for a modification while in the midst of foreclosure;
- contacting homeowners within 30 days of submitting a loan modification application to confirm whether or not a modification will be granted;
- providing accurate paperwork to owners regarding foreclosure; and
- notifying owners within five days of receiving a modification application if any documents are missing.
On top of that, penalties planned by the Federal Reserve and the Controller of Currency were both done away with in the face of the settlement.
Bank of America’s agreement to comply with Schneiderman is positive, but at what point will we realize the folly in celebrating a lender for merely following new rules?
Rather than pursue criminal prosecution for criminal acts, lenders were allowed to negotiate a settlement and avoid admission of wrongdoing. The mutually agreed upon settlement is tantamount to a business contract — something lenders always find a way to manipulate in their favor.
Next time (and there will be a next time), regulators will hopefully have learned that criminal prosecution is the only remedy when it comes to forcing compliance from the most powerful private institutions in the capitalistic world.
RE Authorities push banks to comply with mortgage deal and grant homeowners leeway from The Washington Post and How the banks’ big foreclosure settlement cheated consumers from The LA Times