Mortgage servicers were supposed to have stopped robo-signing foreclosure documents when state and federal authorities cracked down on the practice years ago, but it seems some have not learned their lesson.
While only JPMorgan Chase has been cited for recent robo-signing infractions, Clifford J. White 3rd, the head of a Justice program that oversees consumer bankruptcies, says he is seeing evidence of other servicers not following proper protocols when it comes to dealing with homeowners who have filed for bankruptcy. That could include not just robo-signing documents, but also failing to inform homeowners of mortgage payment increases or charging excessive loan-default fees.
Such abuses violate a 2012 settlement between law enforcement officials and the nation's largest servicers and White is putting other servicers on notice that they too will be punished if they flout bankruptcy rules.
"Compared to where we were a few years ago, the banks are doing a better job," said White, director of the Justice Department's Office for U.S. Trustees. But, he added, "it is disappointing that, after all the years, [the problems] are not completely rectified."
The $25 billion national mortgage settlement was supposed to put an end to the widespread practice of low-level employees at mortgage servicers rubber-stamping foreclosure documents without reviewing their accuracy.
But earlier this month, JPMorgan agreed to a $50.4 million settlement with the U.S. Trustee Program for robo-signing notices of payment changes in 2013 to borrowers in bankruptcy. Almost all of the restitution will be in refunds and credits to borrowers.
For its part, JPMorgan has maintained that it is not guilty of robo-signing documents because its own employees reviewed the accuracy of borrower information. Nonetheless, a third-party vendor electronically signed and filed the payment statements with the bankruptcy court and that, White said, is a violation of bankruptcy court rules.
"I think if one robotically affixes signatures of people who may not have even reviewed the document, it's fair to say it's robo-signing," White said. "We did not consider that to be a technical glitch or violation but an important matter of compliance and integrity."
A former deputy assistant attorney general at the Justice Department, White became director of the trustee program in 2006. In a recent interview with American Banker, White spoke about the details of the recent JPMorgan Chase settlement and his job of protecting the integrity of the bankruptcy process. What follows is an edited version of the interview.
What exactly did JPMorgan Chase do wrong?
Clifford J. White 3rd: The bankruptcy rules require that a debtor in Chapter 13, who must make ongoing payments, is entitled to advance notice as to why there is any payment change. This requirement was put in place because there was a history by the banks, including Chase, of failing to adequately or accurately apply payments or account for their billing of the debtors. The signature is required under penalty of perjury to verify that the person signing the document had reviewed the accuracy of the document. Chase's documents were signed by current employees who had nothing to do with reviewing the accuracy of the documents, and by those who had left the bank, and by employees of third-party vendors working on unrelated matters.
In addition to robo-signing, we [found that Chase had filed] untimely or inaccurate payment change notices and untimely or inaccurate escrow statements.
The case in which the settlement was entered is a good illustration. The homeowners in the case received a large bill increase. They didn't know why and they asked Chase, which couldn't explain why. They tried to go back in court and we asked to have Chase produce the person who signed the notice, and Chase couldn't produce such a person because the person didn't exist at the bank. Payment change notices should be signed properly by a person who can then be accountable.
The $50 million settlement with JPMorgan Chase seems small in light of the $25 billion national mortgage settlement.
To some in the financial community, it may seem these financial harms to consumers are relatively minor. One of the things we try to keep in mind is that those amounts which may seem small in the broader scheme of financial institutions are quite significant to the consumer who is affected. If a debtor has to pay $600, it's quite significant.
I ran a field office in Maryland dealing with debtors and creditors day to day. In one case we were dealing with a scam by a bankruptcy petition preparer who took money from debtors and failed to provide document prep services as allowed by the Bankruptcy Code. The preparer would file faulty bankruptcy papers and the cases would get dismissed and the debtors would be worse off. I got an order against a preparer requiring him to refund the money. The preparer failed to return the money to a mother of a school-age boy. We went back to court on that and on the courthouse steps the preparer paid the money immediately to avoid an additional contempt penalty. The mother had tears in her eyes because now she would be able to send her son to a one-week day camp. That's why accountability matters.
To a bank, misapplying a few hundred dollars in payments may not seem consequential. But to a financially strapped parent, it may make a whole lot of difference. Those of us in government and in the financial world should never forget that.
Why, from your standpoint, have servicers not fixed the problems?
It's hard to generalize, and I'm not going to speak to any [specific] servicer. It appears there remains a problem with regard to taking the regular servicing platforms and applying them to default services in bankruptcy, which does have different rules.
What is your strategy going forward in targeting mortgage servicers?
We have a three-pronged strategy with regard to enforcement against abusive conduct by mortgage servicers. We continue to monitor the large institutions under the National Mortgage Settlement, which was a very successful settlement. This monitoring leads to such things as the Chase settlement. Second, we continue to look, on our own and with other federal and state partners, at problems at other banks that were not part of the national settlement.
And third, we've also been scrutinizing newer entrants to the market. Some of the banks have been selling mortgage servicing rights, and we're concerned about the newer entrants' rates of compliance with the bankruptcy rules. We've been giving them more scrutiny. It is difficult to keep watch over the entire industry as it intersects with bankruptcy. However, we never thought that after the national mortgage settlement was reached and new bankruptcy rules were promulgated that our policing duties would be over.