The nation’s largest mortgage lenders are violating the terms of a punitive 2012 settlement that was meant to prevent unfair and unnecessary foreclosures that destroyed communities and pushed working families from their homes.

Interviews by POLITICO with more than 20 housing counselors, Legal Aid lawyers and government prosecutors in states hard hit by the real estate crisis that followed the 2007 financial meltdown reveal that the nation’s top lenders are violating the settlement and rules put in place last year by the Consumer Financial Protection Bureau. In some cases, the problems — repeated requests for the same documents, for example — stem from ongoing disorganization deep inside the loan servicing departments of the banks, but some homeowners and their representatives claim the issues are a deliberate attempt to use foreclosure to resolve cases that have lingered for years.


In 2012, as 49 state attorneys general and Attorney General Eric Holder’s Justice Department announced the landmark $25 billion accord with five of the nation’s biggest lenders, North Carolina Attorney General Roy Cooper spoke for many when he declared: “If homeowners get the runaround for a modification, if homes are foreclosed before other options expire, the monitor and the courts can step in and make it right.”

The AGs were especially inflamed by stories of banks that continued to accept payments from financially strapped borrowers even as they quietly filed paperwork to take back the homes.

But the abuses haven’t stopped. Since the beginning of 2014, more than 60,000 complaints have been filed nationwide by borrowers about servicers rushing the foreclosure process or mishandling a modification request, according to POLITICO’s review of the bureau’s database. But the complaints likely underestimate the problem because most homeowners have no idea the database exists, according to counselors and attorneys. (More than 469,000 U.S. homeowners were in some stage of foreclosure as of July, with another 1.3 million in serious delinquency, according to the most recent data from CoreLogic.)

The settlement was almost three years old when Kimberly Cook, a single mom in her 30s, walked into the local deed office in Washington, D.C., worried that after a year of haggling, Bank of America had changed its mind about renegotiating her loan. She had made months of reduced payments on a trial basis, but bank representatives were now telling her that she had improperly signed documents — she had failed to use her middle initial, for example — and that she had not submitted an obscure document that isn’t even required by other lenders. A clerk confirmed her fears, telling her that the bank had filed papers a month before in preparation for foreclosure.

“She said ‘you’re not the first person who’s come down here,’” Cook said. “I just lost it. I was just scared.”

Bank of America denies that it misled Cook, insisting that her inability to submit the proper paperwork was the reason for delays and aborted attempts to permanently reduce her loan. But Cook’s ordeal, which required an attorney to sort out, has the hallmarks of the runaround that prosecutors had vowed to crack down on.

The abuses by lenders continue, POLITICO has found, because the settlement deal was crafted in a way that limited oversight and gave banks a wide enough margin of error that they wouldn’t be held accountable if they continued their bad practices. Lawmakers are waking up to the consequences of the cushy deal, as are current and former state prosecutors who say that civil investigations are underway.

“There have been multiple settlements requiring banks to change their servicing practices,” House Oversight Committee top Democrat Elijah Cummings of Maryland said in an emailed statement, “but it is clear that abusive practices continue.”

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At the height of the financial crisis, thousands of desperate homeowners looking for help on their mortgages sent applications to SunTrust’s servicing facility in overnight envelopes. Employees tossed the packages unopened into a room until one day the overburdened floor cracked. At many banks, such a room was known as “the cave.”

“I mean, how many do you have to have for the floor to actually buckle?” said Christy Romero, the special inspector general for the 2008 bank bailout program, who investigated SunTrust and, along with other government prosecutors, secured a $320 million settlement with the bank last year.

SunTrust wasn’t the only bank overwhelmed by the number of borrowers seeking help. To deal with the onslaught, banks cut corners to foreclose on borrowers faster, in some cases forging documents en masse before filing them at local courthouses.

Several state attorneys general decided to coordinate their investigations, which the banks were eager to settle when the Department of Justice and the Department of Housing and Urban Development became involved. Bank of America, Wells Fargo, JPMorgan Chase, Citigroup and Ally Financial signed the deal in 2012. Smaller companies like Ocwen Financial Corp. and Green Tree have signed similar agreements in the years since. Nationstar, another growing firm, is under investigation in New York.

“When you lose your home to foreclosure, you don’t want to hear about bureaucracy, and you don’t want to hear excuses,” said Thomas Perrilli, the Department of Justice’s top negotiator on the deal at the time the 2012 accord was announced. “You want a government that actually solves problems,” said Perrilli, now at Jenner & Block.

The banks were ultimately forced to provide nearly $50 billion in relief. But the deal did not include tough tools for the government-appointed monitor, former North Carolina Banking Commissioner Joseph Smith, to aggressively enforce it.

Instead of a zero tolerance for abuses such as dual-tracking, a pervasive practice in which homeowners believed banks were modifying their loans only to learn that the bank quietly had begun foreclosure proceedings, the deal permitted banks to operate within a margin of error. Up to 5 percent of a bank’s loan files could have problems. But only a small fraction of files, chosen at random by the banks themselves, are reviewed. An outside auditor hired by Smith, the monitor, examines an even smaller sample of those.

For instance, Wells Fargo’s internal review group tested 490 loan files for problems with dual tracking, according to the most recent report by Smith. The outside auditor checked the bank’s work by looking at 245 files. Wells Fargo, the largest mortgage company in the country, services 10.7 million home loans, of which about 5.6 percent, or more than 600,000, are delinquent or in foreclosure. The bank was found to have passed the test, but its error rate wasn’t disclosed.

One reason for the weak oversight, according to sources involved with the 2012 settlement talks, was that the standards were based on what the worst companies could achieve rather than the better performers.

A spokesperson for Smith said in an emailed statement that the monitor felt the tests covered samples considered statistically significant enough to clear most of the firms of wrongdoing.

“The parties to the settlement — the states and federal government — gave the monitor the appropriate power to monitor and enforce the settlement’s terms,” the spokesperson said.

But others say the weak enforcement masks a real problem.

“Should the states be looking back on more of these cases? Yes,” said one source who was involved in the settlement talks.

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For Kimberly Cook, her cramped but comfortable 1940s home was proof that she had escaped public housing. She had bought the house in 2007 with a small amount of money her father left her when he died. “I wanted to give my daughter a house,” Cook said. “I said I’m ready to leave the projects.” But the market tanked soon afterward. Then she lost her job as an office manager for a local labor union.

Bank of America, where Cook had banked since she was a girl, initially denied her application to modify the terms. She didn’t make enough money on unemployment alone, she was told. After she found a new job, though at lower pay, her application to enter a trial period on her newly modified loan was accepted at the end of 2013, and she began making payments while the bank processed the rest of her paperwork.

But then the bank claimed there was a problem — signatures on the application documents weren’t “cursive enough,” she said, or were missing her middle initial. The bank also claimed Cook had not completed a document specific to Washington, D.C., but not required by all lenders. She sent and resent the documents, signing them as she was on the phone with a representative. Cook kept making her payments, however, as she kept trying to negotiate with the bank.

Weeks after accepting her September payment, the bank referred her loan to foreclosure and notified Cook. Her October check was returned, but she felt she was safe when the bank asked her to restart the entire process. But once again, documents she signed were sent back to be signed again. Then she found the legal notices filed at the deed office.

After the New Year, Cook turned to a Legal Aid attorney who worked as her liaison with Bank of America after the foreclosure was filed formally in January. But while Cook was once again making payments as part of a new trial plan, the bank continued to insist the documents and Cook’s signature were unacceptable. Employees, however, gave little information on how to meet their requirements and often gave conflicting instructions, Cook said. In June, just before the court date, the issues were finally sorted out and Cook got a new permanent deal from Bank of America.

“If I had known all this was going to happen, I would have stayed in the projects for another year,” Cook said.

Bank of America denies that it deliberately delayed the process as a way to justify foreclosing on Cook.

“Other than meeting program and investor guidelines for file accuracy and completeness, there is absolutely no logical reason that the bank, as servicer and representative of the investor, would do anything to delay the conversion of an approved and fulfilled trial modification to permanent status,” a Bank of America spokesperson said in a statement.

But tortuous negotiations have also ensnared homeowners as savvy as Baltimore couple Sydney Wright and Ashly Alexander. Wright used to work in the mortgage finance business. Alexander is a real estate agent.

Their three-bedroom town house is filled with boxes of paperwork. Since 2008, the couple have kept a meticulous log of their correspondence with different mortgage companies.

The latest firm, Green Tree (which has since been rebranded as Ditech), has continually asked for documents the couple had already sent in. The company often didn’t respond to inquiries, and when employees there did answer, they sometimes sent conflicting and backdated letters that the couple were later told by the company to ignore. After an unsuccessful mediation with the servicer’s attorneys, the couple’s lawyer filed suit to block the foreclosure.

In February, Green Tree tried to sell the house at foreclosure auction. The couple’s attorney went to the courthouse steps in Towson, Maryland, and held up a sign that read, “This House Is Under Litigation.” No one bought it, so Green Tree took it back. The appeal to save the home from foreclosure is still pending. Green Tree did not respond to requests for comment.

“We do not want them to get away with it,” Wright said. “We understand we may lose our home, but we want this on the record.”

Romero, the special inspector general for the Troubled Asset Relief Program, or TARP, said she’s seen plenty of cases similar to Wright’s and Alexander’s. When the loan file transfers out of one of the big banks, Romero said, the modification paperwork doesn’t always make it over with it. Those papers are handled by a different department, and just as the FedEx packages were once lost in the “caves,” they once again get misplaced as the banks flee the business.

“It’s just gone on way too long,” Romero said.

As for Green Tree, Smith, the settlement monitor, said the latest round of testing “found no evidence of any failures” on the part of the company.

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Of the 60,000 complaints sent to the Consumer Financial Protection Bureau, in roughly 6 percent of the cases the loan servicer acknowledged an error and paid the homeowner or offered non-monetary assistance. But the vast majority of complaints are closed with explanations from the bank that housing advocates say are often misleading or outright lies.

“I send a complaint in, and sometimes it’s a nonresponsive response,” said Carolina Lombardi, an attorney at Legal Services of Greater Miami. She added that the problems are “alive and thriving.”

“It’s troubling to hear that some consumers continue to experience mortgage servicing problems,” a spokesperson for Attorney General Cooper’s office in North Carolina said in an emailed statement. “While the 2012 settlement brought help to many homeowners who were wronged, it’s clear there’s more work to be done to stop unfair home loans and unnecessary foreclosures.”

Many officials within state attorneys general offices have also opened up investigations and expect to bring cases, according to sources, as foreclosure complaints continue to take up a lot of their attorneys’ time. The CFPB is also expected to bring new cases.

But there are few details available on which firms will be targeted or when the cases will be brought.

Sen. Robert Menendez (D-N.J.) asked CFPB Director Richard Cordray during a July hearing if he was worried about the ongoing obstruction that servicers were giving homeowners. Cordray said the agency hears frequently about the issue on its complaint line.

“We do, and I do have concerns about that,” Cordray said. “It’s a problem that has been persisting for years, and it’s one that they need to clean up.”

Other lawmakers, like Cummings, are also concerned the watchdogs like the CFPB aren’t doing enough. A report from the bureau in May showed that examiners have found lingering issues with a number of firms the bureau refused to name or prosecute.

“I’m very troubled, but not surprised, by continued reports of improper practices and abuses by mortgage servicers,” said Rep. Maxine Waters of California, the top Democrat on the House Financial Services Committee, adding that stronger enforcement is needed at federal and state levels.

“The Bureau always takes a range of factors into account in determining how to resolve issues uncovered in an examination,” a CFPB spokesman said in a statement. “Examining for compliance with the new servicing standards has been a high priority for the CFPB, and we are concerned that we are still finding illegal dual-tracking and other problems in the industry.”

Kimberly Cook was able to get her monthly payments reduced from $1,500 per month to $853, which she is making sure to pay on time. But she was shocked to receive a letter from the bank recently. It was a bill for legal fees.

