The nation's largest mortgage servicers still have some work to do to comply with the $25 billion national mortgage settlement.

Joseph A. Smith Jr., the settlement monitor, issued a report Wednesday that found three of the top four servicers had failed a combined seven tests in the first half of this year. Only Wells Fargo (WFC) had an unblemished record in the first six months of this year.

In the first half, Bank of America (BAC) failed three tests while Citigroup (NYSE: C) and JPMorgan Chase (JPM) each failed two. Those three servicers all erred in determining whether loans were delinquent at the time a foreclosure was initiated and in giving borrowers accurate information in a pre-foreclosure letter.

Still, the failures are relatively few considering the monitor has 29 different tests to determine servicers' compliance with more than 300 servicing standards. Those standards were required by the 2012 mortgage settlement with federal regulators and state attorneys general that was crafted after servicers were caught robo-signing foreclosure documents.
"The banks still have additional work to do in their efforts to fully comply with the national mortgage settlement and to regain their customers' trust," Smith said in a press release.

Among the failures, B of A did not notify borrowers of missing documents within five days of receiving an application for a loan modification. It also failed to accurately state in affidavits in bankruptcy proceedings the amounts that were due from borrowers.

JPMorgan Chase failed a test that measures whether the bank followed appropriate timelines for denying a loan modification, though Smith determined that error was not widespread and that no borrowers were harmed.

But Citi's failure to notify borrowers about missing documents within 30 days of a request for a short sale was considered to be widespread. That determination means that Citi had to submit a plan detailing relief to harmed borrowers, which Smith will confirm in a report next year.

So far, all of the servicers have taken corrective actions to address the root causes of their failures. However, if any servicer fails the same test again, Smith can take enforcement action and impose civil penalties of up to $1 million, or in extreme cases, $5 million.

The failures also mean that the servicers are still devoting countless hours to correct servicing mistakes after already telling Smith that they completed the settlement's requirements. Only Ally Financial, formerly known as GMAC, is officially done, Smith says.

Two nonbank mortgage servicers that purchased mortgage servicing rights early this year from Ally Financial now fall under the auspices of the monitor. Ocwen Financial (OCN) has fully implemented all of the servicing standards and had no violations in the first half of this year, Smith found. Testing on Green Tree Servicing, a unit of Walter Investment Management (WAC) was to begin this quarter.

In October, Smith added four new tests that were designed to address thousands of complaints from borrowers. Those tests go into effect next year and address such hot button issues such as single-point-of-contact communications, the accuracy of monthly billing statements, and denials of loan modifications.

"I believe that these developments - the uncovering of servicing problems that are being addressed by corrective action plans and the implementation of four new metrics - demonstrate that the settlement continues to respond to problems in the marketplace and is improved by what we have learned," Smith wrote in the second compliance report released Wednesday.

The Office of Mortgage Settlement Oversight has received 112,419 complaints since October 2012. Most of the complaints dealt with poor communications or inaccurate billing or account information. Between June and September of this year, Smith and a cadre of professionals have analyzed 44,570 complaints that servicers received from borrowers.

The work conducted to test the servicers just this year involved 270 people who logged roughly 97,000 hours over a seven-month period. Smith called the oversight process "extensive and exhaustive."

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