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New York state Attorney General Eric Schneiderman plans to slap Bank of America and Wells Fargo with a lawsuit as early as next week for violating the $26 billion National Mortgage Settlement.
The AG fired a warning shot in May by announcing his intention to sue the banks for missing deadlines to process modifications that could prevent home foreclosures.
Staten Island resident Yenifer Olortiga’s 20-month battle with Bank of America to get a modification after falling behind on the loan due to a family illness is an example of the problem the AG’s office cited back in May.
But under the terms of the 2012 settlement deal, which has been widely criticized as a weak response to banks’ foreclosure crisis misdeeds, he was forced to wait several weeks, giving a national monitor first crack at addressing complaints.
Now the waiting period is almost up, and Schneiderman will respond to 210 documented violations by Wells Fargo, and 129 by Bank of America, with a lawsuit in federal court in Washington, DC, according to a source close to the AG’s office.
Schneiderman’s office had no comment on the suit.
The lawsuit would be the first legal-enforcement claim under the settlement deal by a state AG, and it may serve as a template for other states.
“Time and time again, banks violate the rules of the road, putting homeowners at greater risk of foreclosure,” said Schneiderman, who declined to comment on upcoming lawsuits.
The suit will follow last month’s bombshell allegations by six former Bank of America employees and one ex-contractor in affidavits in Massachusetts federal court supporting a homeowner lawsuit against the bank.
The affidavits allege that Bank of America directed staffers to improperly delay and then deny loan modification applications, steering borrowers away from Home Affordable Modification Program (HAMP) deals and into costlier, in-house modifications.
Earlier this month, Bank of America hit back with a raft of declarations attempting to discredit its accusers.
In court papers, the bank insisted that the whistle-blowers could not have witnessed what they claim to have seen, because “they were not in a position to do so … and would not have witnessed such things in any event because Bank of America’s actual practices were diametrically opposite.”
A hearing is set for Aug. 1 to decide whether the case should receive class-action status, which would be a milestone in homeowner mortgage-crisis litigation.
As the legal battles heat up, it’s clear the current loan-modification system routinely fails troubled borrowers. A recent report by the California Monitor, a program of the California attorney general, blasts the modification process as “dysfunctional,” noting that millions of families have lost their homes to preventable foreclosures over the last six years.
The report notes that banks have financial incentives to drag out modifications, because servicers collect default fees at a foreclosure sale before property owners or investors get paid.
A spokesman for Wells Fargo said the bank remains “firmly committed to meeting the standards established by the National Mortgage Settlement.” A Bank of America spokesman noted that the national monitor reviewed Schneiderman’s claims and declined to bring enforcement action.
“I’m glad that New York’s AG is stepping up to enforce breaches of the settlement if these exist,” says attorney Isaac Gradman of California-based Perry, Johnson, Anderson, Miller & Moskowitz, who specializes in mortgage crisis litigation. “But we haven’t seen any meaningful enforcement action taken against the banks … and the most likely outcome [here] is another slap on the wrist.”