The monitor of the $25 billion national mortgage settlement gave the top five servicers passing grades overall in his first compliance review, but their shortcomings have angered borrowers and in some cases require payment of further compensation.

Bank of America (BAC), Citigroup (NYSE:C) and JPMorgan Chase (JPM) each got dinged for multiple violations, according to a summary of servicers' compliance reports released Wednesday. Missteps included improper cancellations of forced-place insurance policies, failure to notify loan mod applicants of missing documents and the start of foreclosure processes before notifying borrowers.

Perhaps more problematic is that the settlement's monitor, Joseph A. Smith, received nearly 60,000 complaints from consumers about the frustrations of not getting a loan modification or being unable to make direct contact with their servicer.

"Servicers have additional work to do both in their efforts to fully comply with the national mortgage settlement and to regain their customers' trust," said Smith, a former North Carolina banking commissioner who now heads the Office of Mortgage Settlement Oversight. "The settlement is having the intended effect of uncovering problems with servicer performance."

In the summary of the reports, which have been filed with the Federal District Court for the District of Columbia, Smith gave the servicers passing grades for adhering to 304 servicing standards. Only Ally Financial, which is 74% owned by the government, met all of the servicing requirements. 

Bank of America and JPMorgan each failed two of the monitor's 29 tests to determine how well servicers are adhering to the settlement's standards. Citi failed three tests and Wells Fargo (WFC) failed one. As a result those four servicers must now develop plans to fix their specific problems. 

The report also highlighted the risk in force-placed insurance, a type of backup hazard policy that banks buy to protect the homes of borrowers who lack their own coverage. Banks are required under the settlement to cancel force-placed policies within 15 days of receiving proof a borrower is already insured.

Late last year JPMorgan informed Smith's office that the process had failed and the bank voluntarily refunded premiums to more than 2,000 borrowers.

"In November, we self-identified a potential gap … about the timing of refunds for insurance premiums," JPMorgan spokeswoman Amy Bonatatibus said. "We quickly fixed the issue."

JPMorgan also disclosed that it had failed to follow the proper timelines for notifying borrowers about being denied loan modifications.

Citi failed a requirement to notify borrowers in a timely manner that there were missing documents in loan mod applications. Smith determined that the error was so widespread that Citi now has to ensure that any borrower who was harmed receives some form of compensation.

Citi also disclosed that it failed to send letters to borrowers before starting the foreclosure process and failed to notify borrowers about missing documents within 30 days of a request for a short sale.

Bank of America failed to send letters to borrowers before starting the foreclosure process. B of A and Wells Fargo failed  to notify borrowers of missing documents within five days of receiving an application for a loan mod.

The tests generally measured compliance from July to December 2012. For some of the tests, the monitor was able to verify the servicers' report findings. Only if the servicer fails to fix a violation within six months can the monitor assess civil penalties of up to $1 million or in certain circumstances, $5 million.

The top banks all claimed in October that they had met each of the 304 different servicing standards and reforms. The settlement was designed to address servicing abuses that led to the robo-signing of foreclosure documents.

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