WASHINGTON — When the largest US banks agreed to pay $25 billion last year to settle claims of abusive foreclosure practices, they promised to stop seizing homes from borrowers who had completed applications for mortgage help.
Now regulators say lenders may be flouting the spirit of the deal by repeatedly asking for additional paperwork from borrowers seeking loan modifications and then foreclosing while treating the applications as incomplete.
The Consumer Financial Protection Bureau and the court-appointed monitor of the 2012 foreclosure settlement are among those moving to tighten oversight of the process known as dual- tracking, when borrowers facing the loss of their homes are simultaneously negotiating changes in their loans. Mortgage servicers who violate the rules or the terms of the deal could face sanctions including fines of $1 million per infraction.
‘‘It is an important outstanding issue of unfinished business,’’ Joseph Smith, the monitor, said in an interview.
Smith, who is responsible for ensuring Bank of America, JPMorgan Chase, Wells Fargo, Ally Financial, and Citigroup live up to their promises, said he is preparing to start measuring how well banks are communicating with borrowers about loan-workout applications. That could determine whether the servicers or homeowners are at fault for incomplete files.
Separately, the consumer bureau this week plans to complete proposed changes to pending mortgage-servicing rules aimed at tightening restrictions on dual-tracking, according to a person briefed on its work. The rules, to take effect in January, would cover all lenders, including those who are not parties to the settlement such as Ocwen Financial and Nationstar Mortgage Holdings.
Richard Cordray, director of the consumer bureau, said he has met with the heads of the top 25 mortgage servicers ‘‘to tell them face to face that this is a major priority for the bureau, and that it’s something they need to focus on.’’
Consumer bureau chief Richard Cordray says he has met with the top 25 mortgage servicers ‘to tell them face to face that this is a major priority for the bureau, and that it’s something they need to focus on.’
Other US and state agencies also have vowed to pursue banks that violate the settlement terms. Housing and Urban Development Secretary Shaun Donovan has said that authorities would fine banks if they failed to improve treatment of borrowers. New York Attorney General Eric Schneiderman said he is preparing to sue Bank of America and Wells Fargo for breaching the terms of the settlement.
Even as foreclosures decline and the housing market turns around, nearly 2.9 million borrowers have missed at least three mortgage payments and remain in danger of losing their homes, according to data compiled by the housing department. Loan modifications, which reduce monthly payments, are meant to help delinquent borrowers become current again.