The National Mortgage Settlement was supposed to hold five major banks (Ally, Bank of America, Citi, JPMorgan Chase, and Wells Fargo) accountable for the servicing violations that contributed to the foreclosure crisis in this county. (Learn more in Nolo’s article National Mortgage Settlement: Can You Benefit?)
However, not only has servicing misconduct continued to occur (see Nolo’s article Making Sure Banks Comply With the National Mortgage Settlement), but the banks have found a way to avoid complying with the settlement altogether –- by selling off their servicing rights.
What is a Mortgage Servicer?
Mortgage servicers collect and process payments, as well as handle foreclosures when borrowers can’t make their payments. The five banks that are part of the National Mortgage Settlement are the country’s five largest mortgage servicers.
Servicing Reforms Under the National Mortgage Settlement
The National Mortgage Settlement mandated specific standards for mortgage servicers to follow, like prohibiting dual tracking (when a mortgage holder continues to foreclose on a homeowner’s home while simultaneously considering the homeowner’s application for a loan modification) and providing a single point of contact for borrowers in the loss mitigation process. (Learn more about the servicing requirements that the banks must follow when servicing loans and dealing with homeowners in foreclosure in Nolo’s article National Mortgage Settlement: New Rules Help Protect Homeowners in Foreclosure.)
Banks Selling Off Servicing Rights to Avoid Settlement Obligations
It seems that these banks have come up a way to avoid the obligations imposed by the settlement: by selling the mortgage-servicing rights to servicing firms like Green Tree, Nationstar, and Ocwen. By selling the servicing rights, the banks can bypass the settlement standards, along with the costs and efforts associated with ensuring compliance with them.
What This Means for You
This means that if you were counting on the National Mortgage Settlement to ensure you receive fair, honest treatment from your bank during the foreclosure or loss mitigation process, instead you may have to deal with a company that is not bound by the terms of that settlement.
The good news is the new servicing rules imposed by the Consumer Financial Protection Bureau (which are similar to the rules mandated by the National Mortgage Settlement) apply to all servicers, not just big banks. Those rules go into effect on January 10, 2014. And a few states, like California, have enacted legislation with reforms similar to those in the National Mortgage Settlement that apply to all mortgage servicers as well. (Learn more in Nolo’s articles New Federal Rules Protecting Homeowners With Mortgages and New Laws Prohibiting Dual Tracking in the Foreclosure Context.)
by Guest Blogger & Nolo Contributing Editor Amy Loftsgordon