Bank of America (BAC), Citigroup (NYSE: C) and JPMorgan Chase (JPM) all flunked Fannie Mae's test of mortgage servicers, failing to meet even the minimum requirements for performance in 2012, according to a report Fannie released Tuesday.
Wells Fargo (WFC) and Ally Bank both received the equivalent of a "C" grade, signifying an average level of performance relative to their peers.
Fannie's Star program, now in its second year, was designed to create standards and rank servicers based on their overall performance, customer service and foreclosure prevention efforts.
Seventeen of 38 mortgage servicers received either a three- or four-star rating, though no servicer has yet to receive the highest rating of five stars. Fannie does not identify or publish the names of servicers that did not meet minimum requirements and instead referred a reporter to a list of peer groups to determine which ones were left out of the ratings.
The poor performance of the top banks is surprising considering the top five mortgage servicers — B of A, JPMorgan Chase, Citi, Wells Fargo and Ally — each claimed in October that they had met 304 different servicing standards and reforms as part of the $25 billion national settlement with 49 state attorneys general and federal regulators. That settlement was designed to address servicing abuses that led to the robo-signing of foreclosure documents.
Leslie Peeler, Fannie's senior vice president of national servicing, said the Star program was designed "to recognize top performers not to call out," poorer ones. Still, if servicers are rated in the bottom quartile that "indicates unacceptable performance and Fannie may take action, including implementing improvement plans," Peeler says.
Fannie adopted new rules and remedies in January to address poor-performing servicers but has not released any information on remedial actions it has taken so far, she says. Fannie plans to release some information on the worst-performing servicers when first quarter data is available, she says.
Overall, Peeler said the results for 2012 showed "great progress," because five servicers received a four-star ranking when none did so last year. The highest performers — Fifth Third Bancorp (FITB); Associated Banc-Corp (ASBC); the Green Tree Servicing unit of Walter Investment Management (WAC); Navy Federal Credit Union; and Seterus, a unit of IBM (IBM) — demonstrated "consistent processes with repeatable outcomes," Fannie said.
Services that received three stars included Wells Fargo, Ally, Capital One Financial (COF), M&T Bank (MTB), Nationstar and Regions Financial (RF).
Apart from JPMorgan Chase, B of A and Citi, servicers that received no stars included BB&T (BBT), HSBC USA, and Huntington Bancshares (HBAN).
To achieve four stars, the servicers had to score 75 out of a total of 95 on a Fannie scorecard that measures results on loss mitigation, workout effectiveness, time-line management and roll rates, which is the rate at which a current or delinquent loan "rolls" into the next bucket of delinquency, for example, from 60 to 90 days delinquent.
Several servicers would have qualified for the four-star rating based solely on their scorecard criteria, but did not perform as well on tests of operational assessment, which address customer service, borrower outreach, loss mitigation and default management, Peeler says.