If you thought all of the bad press covering robo-signing and shady foreclosure practices would make big banks think twice about foreclosing on struggling homeowners, think again. According to a new survey, heightened media coverage and lawsuits galore have done little to change questionable practices in the mortgage finance industry.
Banks continue to routinely foreclose on scores of homeowners waiting for a loan modification or while they dispute fees or misapplied payments, according to a survey of consumer attorneys released by the National Association of Consumer Advocates, the National Consumer Law Center, and the National Association of Bankruptcy Attorneys.
More than 90 percent of attorneys polled represented homeowners placed in foreclosure while waiting for a loan modification in the past year and more than 80 percent represented homeowners where a foreclosure sale was attempted during the loan modification process. Another 80 percent of attorneys reported instances of bogus property inspection or late fees, which according to the survey, frequently lead to foreclosure.
Having a government-backed loan isn't much help. Two thirds of attorneys polled represented homeowners facing foreclosure who had loans owned by Fannie Mae or Freddie Mac.
"That's one of the takeaways from this survey," says Diane Thompson, an attorney with the National Consumer Law Center. "This is still going on and it's widespread. People are losing their homes even while they have loan modifications pending."
The main problem is a lack of accountability on the part of banks and mortgage servicers.
"There's no effective enforcement mechanism," Thompson says. "There are no penalties for servicers who fail to comply with any of the provisions of a uniform set of national servicing standards."
In other words, banks and mortgage servicers have been told by the federal government to stop initiating foreclosure practices while loan modifications are underway, but have simply not complied.
Thompson is cautiously optimistic about the impact of the recent $25 billion robo-signing settlement—which includes proposed changes to mortgage servicing guidelines—but details about how banks will be held accountable to those standards remain foggy.
"We're hopeful, but that settlement only applies to five banks and in terms of principal reductions, doesn't apply to GSE loans at all, so again you have the problem of inconsistent standards," Thompson says. "And it's not clear what the enforcement mechanism would be."