Early this month, California Monitor Katherine Porter released her first report (.pdf) associated with the National Mortgage Settlement. Ben Hallman has provided a helpful synopsis of the report.
Porter, who was appointed by California Attorney General Kamala Harris to oversee the settlement, focused on dual-tracking she said because it is one of the most harmful servicing practices that banks were required to reform. Dual-tracking also suggests broader institutional problems that have plagued the foreclosure industry for years, including a lack of communication between various departments at mortgage companies, she said. "Dual-tracking costs people their homes," Porter said. She has "tempered optimism" that banks will stop dual-tracking and make other reforms required by the settlement.Porter wisely tempered her optimism. The Consumer Financial Protection Bureau (CFPB) has retreated from banning Dual Tracking as part of its proposed new regulations. Although the National Mortgage Settlement Five must cease Dual Tracking, the rest of the industry may continue this harmful practice. A recent New York Times editorial asks, Will Foreclosure Abuses Ever End?
[The Consumer Financial Protection Bureau's] proposal retreats from many existing requirements. It does not impose any meaningful standards for loan modifications beyond those already required by various federal programs and agreements, many of which will expire in the future and none of which apply to the entire industry. In a stunning reversal, the proposal actually permits dual tracking.The CFPB's actual loss mitigation proposal is quite tame.
9. Loss mitigation procedures. Servicers that offer loss mitigation options to borrowers would be required to implement procedures to ensure that complete loss mitigation applications are reasonably evaluated before proceeding with a scheduled foreclosure sale. The proposal would require servicers to exercise reasonable diligence to secure information or documents required to make an incomplete loss mitigation application complete. In certain circumstances, this could include notifying the borrower within five days of receiving an incomplete application. Within 30 days of receiving a borrower's complete application, the servicer would be required to evaluate the borrower for all available options, and, if the denial pertains to a requested loan modification, notify the borrower of the reasons for the servicer's decision, and provide the borrower with at least a 14-day period within which to appeal the decision. The proposal would require that appeals be decided within 30 days by different personnel than those responsible for the initial decision. A servicer that receives a complete application for a loss mitigation option could not proceed with a foreclosure sale unless (i) the servicer had denied the borrower's application and the time for any appeal had expired; (ii) the servicer had offered a loss mitigation option which the borrower declined or failed to accept within 14 days of the offer; or (iii) the borrower failed to comply with the terms of a loss mitigation agreement. The proposal would require that deadlines for submitting an application for a loss mitigation option be no earlier than 90 days before a scheduled foreclosure sale.
The CFPB may permit Dual Tracking, but state-level consumer protections and the common law should not. Victims of Dual Tracking still have a variety of legal remedies available to them even if the Federal government refuses to regulate its TBTF banking enterprises.