CHARLOTTE, N.C. -- Bank of America and Wells Fargo both failed tests checking to make sure the banks were following the rules of a national mortgage servicing settlement, a report released Wednesday shows.
The $25 billion settlement between state attorneys general and five large U.S. banks announced last year was intended to clean up widespread evidence of shoddy mortgage servicing practices by imposing a slate of more than 300 rules. Wednesday’s report covered 29 tests gauging how they’ve done.
Citigroup and JPMorgan Chase also failed certain tests. Only ResCap, formerly known as the servicing portfolio of Ally Financial, did not fail a test. The company has sold its loans to specialty servicers, who will continue to be evaluated on the rules.
Bank of America was found to have failed two tests, each in the first quarter of this year. One requires banks to provide correct information in letters sent to homeowners before sending them into foreclosure. The other requires banks to tell borrowers working on a loan modification whether they have sent in all the correct documents within five days.
Wells Fargo failed one test in the fourth quarter last year. It also involved telling people about missing documents within five days.
The banks found in violation of the settlement have been directed to come up with plans to fix the problems. Should they break those rules again, the monitor can impose fines.
The report, released by settlement monitor and former N.C. banking commissioner Joseph Smith, is the first disclosure of how the banks have conformed to the servicing standards. Previous reports have touched only on the amount of mortgage relief the banks have provided directly to homeowners.
At last count, about $50.6 billion had been given through short sales, second-lien extinguishments and principal reduction. Not every form of relief receives dollar-for-dollar credit under the settlement. Some forms receive just pennies on the dollar.
Wednesday’s report comes after tens of thousands of complaints have poured into the monitor’s office. Nearly a third have involved problems with the “single point of contact” system each bank is supposed to have in place to match a borrower in distress with a bank employee, the report shows.
“The potential violations revealed by this process are consistent with what I have been hearing from consumers, state attorneys general, advocates, and housing counselors around the country,” Smith said in his report.
For most rules, banks are allowed to make errors in a certain percentage of cases -- for example, 5 percent. Failing a test means the percentage of mistakes exceeds that threshold.