More than a year after the $25-billion settlement that was to serve as a denouement of the notorious “robo-signing” scandal, banks still have not changed their habits of unscrupulously seeking quick mortgage foreclosures at the expense of struggling homeowners, a report from the body monitoring compliance of settlement terms indicates.
A bit of background: In late 2010, many large banks in the U.S. were found to have perpetrated horrendous abuses to speed up foreclosures amidst the housing crisis, most notably by allowing employees to rapidly sign affidavits to foreclose on homes without reviewing whether they were valid or accurate, leading to countless foreclosures that legally should not have occurred and numerous cases of heart-wrenching misery for evicted families. Some lost homes because their payments were not properly received, while others could not be present to challenge wrongful foreclosures because they were serving overseas in the military. Worse, it turned out that robo-signing long predates the 2008 crisis. Needless to say, a snafu ensued and public outcry demanded our government act. It did, and the result was this historic settlement between five banks, jointly the Justice Department, and state attorney generals last February.
Now, if you ask me, having our country’s largest banks cough up $25 billion between them is barely a slap on the wrist, and the figure looks pale in comparison to the amount the federal government shelled out to shore up the banks in the beginning of this housing crisis. But with this settlement a monitoring body called Office of Mortgage Settlement Oversight was created to periodically examine if banks have played by the rules or continued to break the law. So on June 19, they submitted a report to the courts on the banks’ compliance. The picture revealed is not pretty.
Four out of the five banks involved in the settlement, Bank of America, Citigroup, Wells Fargo, and Chase, failed at the “loan modification document collection timeline compliance” metric. This means when homeowners facing foreclosure submitted their documents requesting loan modification relief as permitted by law, the four banks were not forthcoming in telling them whether any paperwork is missing. Still in the dark about what had gone wrong, they got ejected from their homes when it was already too late to send in paperwork.
According to the report Citi seems to be a particularly serious offender on this count, as its error rate was 53.04%, indicating among the cases involving missing modification documents more than half of the time the bank did not notify homeowners on time. A different, but related and common complaint against the banks the report identified was “dual tracking,” where a bank would start foreclosing on a home while pretending to negotiate on a loan modification application.
Bank of America and Citi failed at another metric called “pre-foreclosure initiation,” by neglecting to send a letter to homeowners before they started the foreclosure process. We see a general theme running through all these findings: that banks are trying their best to hide as much information as possible from homeowners lest a foreclosure could be halted. It sounds pretty pathological and desperate.
The report spells out possible penalties if these banks fail again in the next two quarters, but they look paltry: Penalties include “a court order to stop specific behaviors,” “up to $1 million civil penalty,” and “up to a $5 million fine for failing particular metrics multiple times.” Sorry, but to large corporations several million dollars are almost nothing. When the settlement was announced, some commentators like economist Simon Johnson decried its leniency towards banks and that not a single banker went to the slammer for illegally taking away people’s houses. Unless some dramatic change takes place, it is unlikely any banks would receive significant punishment from the violations after the robo-signing settlement.
When Congress and the Justice Department refuse to hold big banks truly accountable, or even collude with them (a bill to effectively legalize robo-signing passed both chambers and was only stopped by a presidential veto), some state officials, individual homeowners, and activists are not so patient. A month before this report was published, Attorney General of New York Eric Schneiderman had already planned to sue Bank of America and Wells Fargo for violations he documented independently. An indignant Florida couple brought trucks to take away furniture from a Bank of America branch when the bank foreclosed their house in error but balked at paying them any damages even after a court decision in the couple’s favor. And we should not forget the important role played by Occupy activists who stood at the frontlines in countering improper foreclosures through direct action. All of these different efforts should be commended, as they send a message that even when the federal government fails to uphold justice and fairness from the top, states, localities and individuals below will not stay silent and will take action on their own.