New York Attorney General Eric Schneiderman said on Monday he plans to sue Bank of America Corp and Wells Fargo and Co for violating the terms of a settlement designed to end mortgage servicing abuses.
Schneiderman issued the announcement, which suggests lawsuits could be filed against the banks within two months, ahead of a widely anticipated report from the monitor for the multi-state settlement, which is expected to be critical of banks.
The planned action is the first involving allegations that top banks, which agreed last year to provide $25 billion in relief to homeowners and comply with a set of servicing standards to atone for foreclosure misconduct, are not living up to their obligations under the deal.
Schneiderman said that, since last October, his office had documented 339 violations of standards – 210 by Wells Fargo and 129 by Bank of America – dictating the timeline for banks to process mortgage modification applications.
Schneiderman said he would seek injunctive relief and an order requiring the two banks to comply with the settlement. His statement did not say he was seeking damages or penalties.
But it is unclear how far Schneiderman can take his efforts, because they come outside the primary channel authorized by the settlement for any potential violations.
The settlement authorized the monitor to first work with a servicer to correct any potential violations and sue only if the servicer does not fix the errors.
In an afternoon news conference, Schneiderman acknowledged the authority provided to the monitor, but said he could still move forward.
“There is more than one cop on the beat,” he said.
The action draws further attention to the continuing plight of borrowers facing foreclosures some five years after the start of the housing crisis. Some borrowers say they wait months for word from their bank on a request to modify a loan, only to be told their paperwork has been lost.
It also highlights the banks’ lingering mortgage headache, even if this latest move might not result in significant additional monetary penalties.
“Wells Fargo and Bank of America have flagrantly violated those obligations, putting hundreds of homeowners across New York at greater risk of foreclosure,” the attorney general said in a statement.
A spokeswoman for Wells Fargo declined to comment. Bank of America said in a statement that it takes seriously the allegations of servicing problems and will work quickly to address them.
Bank of America and Wells Fargo are among five banks that agreed to the settlement in February 2012. At the news conference, Schneiderman declined to say whether the other three banks – JPMorgan Chase & Co, Citigroup Inc and Ally Financial Inc – could face similar lawsuits, but said his announcement had “implications” for the other servicers.
WATCHDOG REPORT COMING SOON
The National Mortgage Settlement was brokered between the banks and 49 state attorneys general.
While the settlement’s monitor has issued several reports on monetary relief provided to homeowners under the settlement, an upcoming report will be its first assessment of compliance on troubled borrowers. That report, expected in the next few weeks, will include how quickly banks must respond to requests for loan modifications.
The monitor, former North Carolina Banking Commissioner Joe Smith, said in a statement on Monday that he appreciates Schneiderman’s interest in the issue. He also said he will use the full force of his own power to hold banks accountable.
“Under the Settlement, there is a process that allows me to conduct reviews of the banks’ compliance and report them to the public. I am following this process and look forward to sharing my findings and enforcement activities in June,” Smith said.
A committee comprised of federal regulators and more than a dozen state attorneys general will have the first crack at pursuing any potential litigation. U.S. Department of Housing and Urban Development General Counsel Helen Kanovsky, whose agency sits on the committee, said HUD takes violations of the settlement seriously and expected “further action to be taken” after Smith releases his findings.
Iowa Attorney General Tom Miller, who spearheaded last year’s settlement, said in a statement that his office has been in discussions with Smith about several issues, including missed deadlines.
Connecticut Attorney General George Jepsen, who is also on the monitoring committee, said he was aware of many of the issues raised by New York and will work with the committee to ensure the banks comply with the settlement.
Some housing advocates welcomed Schneiderman’s move ahead of other states and the settlement’s monitor.
“We hope this action by the AG will push other state and federal regulators to draw a line in the sand against abusive mortgage servicing practices,” Josh Zinner, co-director of the Neighborhood Economic Development Advocacy Project in New York, said in a statement.
In an interview, Zinner said housing advocates were worried that a lot of problems still remained since last year’s settlement.
The February 2012 settlement released the banks from claims over faulty foreclosure practices and the mishandling of requests for loan modifications.
It was supposed to speed mortgage relief to homeowners in need and provide $2,000 payments to borrowers who lost their homes to foreclosure.
(Reporting by Karen Freifeld in New York and Aruna Viswanatha in Washington; Editing by John Wallace and Andre Grenon)