Four Servicers Fail to Comply With Parts of Mortgage Settlement

Four of the largest U.S. mortgage servicers failed to comply with parts of a $25 billion landmark national mortgage settlement, according to the watchdog overseeing the process.

Joseph A. Smith said Wednesday that Bank of America Corp. (BAC), J.P. Morgan Chase & Co. (JPM), Citigroup Inc. (C) and Wells Fargo & Co. (WFC) each failed at least one of 29 metrics that measure standards over how to provide relief to homeowners under threat of foreclosure.

The compliance exams "confirms what I've been hearing from people out in the field, which is that we still have work to do on the loan modification process," he said in an interview. Mr. Smith is the independent monitor named by federal and state officials to oversee the mortgage-foreclosure deal.

Federal agencies and 49 state attorneys general agreed to settle certain foreclosure-processing abuses with the four banks and Ally Financial Inc. in March 2012, a deal valued at $25 billion.

The settlement included a detailed list of 304 new standards governing various aspects of the loan modification and foreclosure process. Banks were required to pay $5 billion in fines and to provide consumer relief, including mortgage write-downs and refinancing, worth $20 billion.

Wednesday's report, filed in federal court in Washington, D.C., examined banks' compliance with the mortgage-servicing standards.

The report comes as some attorneys general involved in the settlement have raised concerns over how the banks are handling service to homeowners looking for relief.

In May, New York State Attorney General Eric Schneiderman notified a committee monitoring the agreement that he intended to sue Bank of America and Wells Fargo for violations of the servicing standards.

A Bank of America spokesman said the bank took immediate action to resolve failures. "We are working with the monitor to confirm our corrective action plan for formally resolving these areas," he added. A spokesman for Citi said when the monitor pointed out the problems the bank took action to address them and is working on its corrective action plan for areas that have not yet been fixed.

A J.P.Morgan spokeswoman said the bank quickly addressed the failure after self reporting it. A Wells Fargo spokesperson didn't immediately respond to a request for comment.

The most frequent failures were related to providing timely service and identifying one single contact person at the bank for each borrower.

The failures corroborate recurring complaints raised by homeowners and their advocates that banks frequently change the main point of contact on a case, requiring homeowners to resubmit documents numerous times.

"It's a constant state of supplying missing documentation," said Carol Yopp, director of counseling and foreclosure prevention at the advocacy group Long Island Housing Partnership. "There are still a lot of miscommunications."

Mr. Smith has yet to complete separate audits that will determine how far along the banks are towards meeting their consumer-relief requirements, which provide varying degrees of "credits" depending on the type of loan-forgiveness and other assistance that banks provide.

Bank of America and J.P. Morgan said last month that they had recently completed doling out the required aid under the settlement, and Wells Fargo had said it was 90% complete. Mr. Smith said the first audit, which would examine all aid completed through 2012, would be done by next month. He had certified earlier this year that Ally Financial Inc. had satisfied that portion of the settlement.

Mr. Smith said it was likely that by the end of March, most or all of the banks had finished their consumer-relief requirements. An audit on aid provided through the first quarter wouldn't be completed until this fall, he said.

The servicing standards remain in effect for three years, and banks will still be tested on their compliance even after they've satisfied the consumer-relief portions of the settlement. For instance, banks will still be tested on how they process foreclosures and loan modifications.

"We're better off today than we were a year ago, but we're not where we need to be yet and we're keeping at it," said Mr. Smith.

Subscribe to WSJ: http://online.wsj.com?mod=djnwires