New York Alleges Banks Broke Servicing Promises

Wells Fargo and Bank of America have serially violated the terms of the National Mortgage Servicing Settlement, New York Attorney General Eric Schneiderman alleged on Monday.

The attorney general intends to sue the two banks over more than 300 different servicing violations documented by his staff since October 2012. The alleged failures will be described at an afternoon press conference.

New York would take its action under a provision of the mortgage servicing settlement allowing states to pursue claims if the settlement monitor, Joseph Smith, does not choose to champion their complaints. On Friday, Schneiderman sent Smith what his office described as "a significant amount of back up documentation demonstrating the severity of the violations."

Although the attorney General's office claims to have found more than 300 violations of the settlement's terms between the two banks, a focus seems to be modifications. Under the terms of the settlement with banks, servicers must respond to modification requests within 30 days and promptly notify borrowers of any missing documentation. Since the settlement was signed, however, consumer advocates and foreclosure defense attorneys have repeatedly complained that many banks are not abiding by its terms.

The AG's announcement cites the case of a long island couple, Joyce and Alton Harden, who have "been trying to negotiate with Wells Fargo for a loan modification for the past three years."

Wells Fargo declined to comment, and Bank of America did not immediately respond to a question about the allegations.

Though most widely noted for its headline requirement of $25 billion worth of mortgage modifications, principal reductions, and short sales, the 2012 settlement required banks to change scores of servicing practices, from establishing a single point of contact for borrowers to not pursuing foreclosures while modification attempts are underway.

Most of the complaints — 210 out of 339 — stem from alleged servicing failures by Wells Fargo.

Consumer advocates appear to have played a significant role in assembling the case, with officials from the Neighborhood Economic Development Advocacy PRoject and Legal Services NYC Brooklyn quoted in the release.

Schneiderman's announcement is likely to revive controversy over the national mortgage settlement, which followed significant infighting among the states. Banks had hoped that the national deal would put state-by-state litigation behind them.