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Wells Fargo, Bank of America face new criticism of mortgage servicing practices

Bank of America and Wells Fargo are still being criticized for their mortgage servicing practices, more than a year and a half after a national settlement aimed to force big banks to clean up their act.

Two watchdogs took separate actions Wednesday to take aim at missing paperwork and delayed responses during mortgage modifications, issues that have spurred thousands of complaints to federal regulators.

The New York attorney general announced Wednesday plans to file a lawsuit against Wells Fargo, alleging the San Francisco bank is not living up to the terms of last year’s $25 billion national settlement with large U.S. mortgage servicers. Wells maintains its largest employee base in Charlotte after acquiring Wachovia in 2009.

The second action came from Raleigh, where mortgage settlement monitor Joseph Smith announced that Bank of America, Wells Fargo and three other banks will now be ordered to show they’re giving borrowers a chance to resubmit missing documents during a mortgage modification. If they deny the modification, they must clearly explain the reason.

Wednesday’s actions are the latest in a steady drumbeat of accusations and complaints against the big banks dating back to the mortgage meltdown. They both relate to the blockbuster settlement with five big banks reached in 2012 that tried to fix the market’s most prevalent problems, like “robosigning” -- the practice of rapidly signing foreclosure papers without reading them.

State attorneys general, federal agencies and the banks agreed to a slate of more than 300 new rules for lenders to follow while working with homeowners looking for help. They were also required to pay about $5 billion in cash and provide $20 billion in aid to borrowers.

Since then, the banks have neared the end of their monetary requirements. But how well they’ve stuck to the new rules has been up for debate. In June, Smith’s office issued a report stating that Bank of America and Wells Fargo had each failed certain tests measuring their compliance.

‘A strong message’

The New York attorney general’s lawsuit will claim Wells often responds too slowly to customers’ requests for mortgage modifications. New York Attorney General Eric Schneiderman first alleged the problems in May. The suit comes after the bank failed to reach an agreement with his office to address the issues, he said.

In a Tuesday statement, Wells spokeswoman Vickee Adams said the bank is “proud of its track record of providing important relief to borrowers in New York and nationwide.” She said Wells has continually made improvements to its servicing since the settlement was announced.

Bank of America struck a deal with the attorney general’s office to avoid litigation. The Charlotte bank will make high-level contacts at the bank available for housing counselors working on behalf of distressed borrowers, among other commitments, a spokesman said Tuesday. Schneiderman said he is leaving the door open for future legal action against Bank of America if the new programs aren’t effective.

“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,” Schneiderman said in a statement.

Bank of America’s new programs will ultimately be expanded to other states, including North Carolina.

“Struggling homeowners who seek help from their mortgage servicer deserve to be treated fairly,” N.C. Attorney General Roy Cooper said in a statement. “That’s why we fought for this settlement in the first place and why we’re continuing to push the banks to live up to their obligations to homeowners.”

‘Persistent issues’

In the second development on Wednesday, Bank of America, Wells Fargo and the three other banks participating in the national mortgage settlement will now face new tests to measure their compliance, monitor Joseph Smith said Wednesday.

One metric gauges whether banks have given customers a chance to resubmit modification paperwork that has been deemed incomplete. Another requires banks to clearly explain to homeowners why they’ve been denied for a modification and offer other alternatives.

A third asks banks to show that they have guidelines to ensure contact people at the bank are performing well. And the last requires accurate billing statements.

Smith said the tests are designed to address what he called “persistent issues” in the mortgage servicing industry. If he finds banks aren’t following the guidelines, his office can ultimately impose fines.

“I have met with attorneys general, counselors, other advocates, and distressed borrowers in 10 states over the past year,” Smith said in a statement. “Time and time again, I have heard their ongoing frustrations with the loan modification process.”

Dunn: 704-358-5235; Twitter: @andrew_dunn
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