New York To Sue Wells Fargo For Failure To Comply With $26B Mortgage Settlement

Last spring, New York state Attorney General Eric Schneiderman threatened to sue both Bank of America and Wells Fargo, alleging that the banks had repeatedly failed to comply with the 2012 $26 billion settlement between multiple states and the nation’s five largest mortgage servicers. Now the AG intends to make good on that threat by actually filing suit against Wells.

The national mortgage settlement sets out more than 300 loan-servicing standards with which the banks are to comply. However, in his warning letters to BofA and Wells Fargo, Schneiderman alleged that he had evidence from homeowners in the state that these servicers had repeatedly and persistently failed to follow basic rules like: providing written acknowledgement of receipt of a loan modification application within 3 business days; notifying the borrower of all missing documents or deficiencies in the application within 5 business days of receipt of the borrower’s initial loan modification application; giving the borrower 30 days to submit missing documentation or correct a deficiency; and making a decision on a complete loan modification application within 30 days.

Schneiderman’s office said it had received complaints alleging 210 compliance violations regarding Wells Fargo home loans from homeowners in New York.

“While we have brought much needed relief to thousands of New Yorkers, too many homeowners in our state are facing unnecessary challenges as they fight to keep their homes,” said Attorney General Schneiderman. “While Bank of America has chosen to work with us to take the steps required to adhere to their commitments, Wells Fargo has taken a different path. Both of these cases should send a strong message that the big banks must comply with the legally binding Servicing Standards negotiated in the National Mortgage Settlement, or face the consequences.”

Bank of America says it has been working with the AG’s office to resolve these issues to avoid the lawsuit and will reportedly designate a “high-level” employee dedicated to fielding and responding to questions from housing counselors.

BofA has also agreed to redesign its “missing documents” letter to ensure that borrowers know exactly what information is needed to move forward with a loan modification request. The bank will stop transferring the servicing rights to third parties on New York mortgages when borrowers are already in negotiations for a loan modification or are making trial payments on a loan modification.

Finally, the bank will let borrowers’ attorneys negotiate loan modifications directly with Bank of America staff, rather than with the bank’s outside foreclosure lawyers.

“We are pleased to resolve these matters without litigation,” says a rep for the bank in a statement. “Along with the settlement monitoring committee, we continue to improve the experience for eligible customers and groups that represent them.”

According to the NY Times, talks between Wells and Schneiderman’s office cooled after the AG requested that the nation’s largest home mortgage lender acknowledge that its system was broken and publicly commit to improving it. Instead, the bank reportedly picked apart the list of complaints from homeowners, claiming it had already approved modifications for about 40% of these homeowners, and was awaiting a decision on many of the others.

The AG’s office apparently felt that, by simply addressing the individual complaints and not fixing the bigger-picture issues, Wells was avoiding making necessary systemic changes to prevent future violations. Sources told the Times that, even after the warning and after supposedly making improvements to its servicing, Wells is still the most complained-about servicer in the state.

Wells says it has not yet seen the lawsuit, but that “if true, it is very disappointing that the New York attorney general continues to pursue his course, given our commitment to the terms of the National Mortgage Settlement and ongoing engagement.”

New York to Sue Wells Fargo Over Mortgage Settlement [DealBook]
NY to sue Wells Fargo, strike deal with Bank of America over mortgages: sources [Reuters]