Are banks living up to robo-signing settlement obligations?
Earlier this year, five of the nation's largest mortgage servicers
reached a $25 billion settlement with federal and state officials regarding
the now infamous "robo-signing" scandal. Specifically, it was
alleged that bank employees were signing sworn foreclosure affidavits
even though they did not have first-hand knowledge of the facts contained
in the affidavits - leading to claims of unfair practices and foreclosure abuses.
When the robo-signing settlement was announced, it was heralded as a victory
for consumers and that it would provide immediate relief to
homeowners facing foreclosure. However, as the banks now start to fulfill their obligations under the
national settlement, it appears that they may not actually be shouldering
as much of the burden as the initial numbers suggest.
Bank of America Relief
Reuters News, Bank of America - which owes the most out of the five banks involved
in the national settlement - announced that $15.8 billion in mortgage
relief had been provided to 164,000 of its customers through September
of this year. This included $2.5 billion in home-equity loan relief, $7.4
billion in shorts sales or deeds-in-lieu of foreclosure and $4.75 billion
in principal mortgage reductions (in addition to $847 million in other
Bloomberg Businessweek reports that Bank of America feels it is on pace to fulfill all settlement
obligations in one year instead of the three years originally given for
compliance. However according to recent reports, the numbers reported
may not actually reflect the true cost to Bank of America.
For example, the
Financial Times reports that of all the first-lien principal reductions agreed upon by
Bank of America, roughly 60 percent are from loans that were bundled into
mortgage-backed bonds and sold to investors - meaning investors and not
the bank are bearing the brunt of these penalties. However, it should
be noted that the national settlement was written to allow banks to reduce
principals in mortgages they do not actually own, but only service. So
while this may appear suspicious on the surface, it is permitted under
Another issue with the implementation of settlement provisions is that
state governments are using money received to fill gaps in their general
funds as opposed to helping homeowners avoid foreclosure. Accordingly,
it seems that homeowners may not be receiving the help they had originally
hoped for following the initial announcement of the robo-signing settlement.
Bankruptcy and foreclosure
If other methods of foreclosure relief have failed to provide assistance
for struggling homeowners, they may want to consider utilizing a
Chapter 7 bankruptcy in conjunction with their foreclosure defense. For instance, a homeowner
can halt all foreclosure proceedings by filing for Chapter 7 bankruptcy
and subsequently challenge the bank in court - during which time the homeowner's
credit is improving. Consequently, even if the homeowner loses to the
bank in a court battle, they may now be eligible for FHA financing on
a new home - a home they can afford and build equity in - since their
credit has improved.
This type of strategic planning is just one example of how an experienced
consumer rights attorney can help a homeowner facing foreclosure no matter
the circumstances. If you are facing a foreclosure and feel like you are
out of options, it may serve you well to speak with a knowledgeable bankruptcy
attorney who can help guide you through this complex process.