For the big banks, there seems to be no end to the legal mayhem. New York Attorney General (AG) Eric Schneiderman is planning to sue Wells Fargo & Company (WFC) and Bank of America Corporation (BAC) for alleged violation of the terms of the National Mortgage Settlement deal announced in Feb 2012.
Under the terms of the settlement, the 5 banks – BofA, Wells Fargo, JPMorgan Chase & Co. (JPM), Ally Financial Inc. and Citigroup Inc. (C) – had agreed to fulfill new foreclosure servicing standards. However, the AG alleged that BofA and Wells Fargo did not meet certain standards established for processing borrowers’ loan modification applications.
Since Oct 2012, the AG’s office recorded about 339 violations of standards in aggregate – 129 by BofA and the remaining by Wells Fargo. The infringed standards include not accepting loan modification applications within the specified time period and failing to inform borrowers about insufficiencies in their applications. Further, the banks failed to provide borrowers the agreed 30 days to correct their applications and did not take modification decisions within a 30-day period.
The AG stated that if the deal monitoring committee fails to undertake stern action, he will sue the banks. Notably, the settlement deal authorizes the committee to first work with the servicer to rectify any violations. Only if the servicers do not correct the flaws, can they be sued.
Hence, for the time being, both BofA and Wells Fargo do not face any new litigations from the AG pertaining to the settlement deal. The banks will have to wait for the quarterly monitor report, which is expected to be released soon.
However, if BofA and Wells Fargo fail to rectify their violations, they could face increased litigation headwinds. Further, the borrowers will have to suffer as a result of such errors.
Currently, both BofA and Wells Fargo carry Zacks Rank #3 (Hold).
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