Bank of America Fails Two Mortgage-Settlement Tests

CHARLOTTE, N.C. (The Charlotte Observer/TNS) -

Bank of America has failed two of 31 tests designed to see whether it is complying with a national mortgage settlement’s rules, a report Tuesday from the settlement’s watchdog shows.

The tests involve sending pre-foreclosure letters to borrowers and notifications to people seeking mortgage modifications.

The report from former N.C. Banking Commissioner Joseph Smith measures compliance by Bank of America and other mortgage servicers with the 2012 legal settlement. In the latest report, Bank of America failed tests on two metrics out of 31 it was tested on during the first half of the year.

The results mean the Charlotte bank has to implement a plan to correct the behavior. If the bank fails tests on the same metrics again, it could face penalties.

In Tuesday’s report, Citigroup was the only other lender to fail a test.

The $25 billion national mortgage accord was reached with the country’s five largest mortgage servicers to settle claims of loan servicing and foreclosure abuses. Ocwen Financial Corp. and Green Tree Servicing are also subject to the settlement’s terms after buying servicing assets from Residential Capital, one of the settlement’s five original servicers.

According to Tuesday’s report, the mortgage settlement is holding mortgage servicers accountable and, overall, servicers have made improvements. Servicers’ performance must continue to improve, the report says.

In an interview with the Charlotte Observer on Monday, Smith attributed Bank of America’s failure of its two tests in part to changes the bank had to make internally to comply with the Consumer Financial Protection Bureau’s new mortgage-servicing standards, which took effect in January during the latest testing period.

“What was required was in fact for Bank of America to modify its IT systems to reflect the new rules,” Smith said. “Every time you update … a system, any system overhaul brings with it the possibility of error. The fact that they had to … revise their systems created the opportunity for error.”

But, he added, servicers are still expected to comply with the settlement.

“That doesn’t excuse anything,” he said.

Bank of America spokesman Rick Simon said in a statement that Smith’s report shows the bank has “substantial compliance” with more than 300 standards required under the settlement.

“We have worked to ensure that our customers in need of assistance know they are being treated fairly and are receiving timely and accurate decisions with respect to any relief they are seeking,” he said.

One of the tests Bank of America failed covers whether a mortgage servicer is providing borrowers with required notifications no later than 14 days before referring them to foreclosure and whether those notification statements were accurate. The other test it failed covers whether a servicer notified a borrower of any missing documents in a loan-modification application within five days of the servicer receiving the application.

The bank has failed that latter test before.

The report shows New York-based Citi failed a test of a metric measuring whether, among other things, a servicer approves or denies a loan-modification application within 30 days of receiving necessary documents.

Citigroup spokesman Mark Rodgers said in a statement that the company remains committed to fulfilling the terms of the settlement for the best interests of its clients. One of the company’s top priorities is continuing to work with distressed borrowers to help them avoid potential foreclosure and remain in their homes, he said.

The report also shows Bank of America passed a test of a metric it failed earlier and was supposed to correct. That metric measures whether a servicer accurately stated amounts due from borrowers in affidavits filed in bankruptcy proceedings.