B of A Signs $10MM HUD Pact Over Faulty Loss Mitigation

The Department of Housing and Urban Development has reached a settlement with Bank of America that releases the company from liability for failing to adequately provide alternatives to foreclosure on 57,000 delinquent government-insured mortgages.

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The agreement, a draft of which was provided to American Banker, was previously undisclosed. It has been forged on a separate but parallel track from continuing settlement talks between Bank of America, state attorneys general and other regulators over alleged mortgage origination and servicing failures. (AB is a sister publication to National Mortgage News.) 

B of A’s pact with HUD requires it to waive a minimum of $10 million in unpaid mortgage payments and vet each of the 57,000 delinquent borrowers for a possible loan modification, short sale or other foreclosure alternative.

“Our total costs for the program will be multiples of that” $10 million minimum, B of A spokesman Dan Frahm said. The deal calls for measures to “ensure these customers have every opportunity to stay in their homes,” he added.

After such outreach, the settlement paves the way for B of A to foreclose on homes that borrowers could not afford even after a mortgage modification and those that have been left vacant by owners.

In forging the agreement, HUD decided to forgo steep monetary damages or admissions of error from the bank.

Instead, it pushed for the lender to implement steps that in most cases it was supposed to have already taken under the terms of its FHA-guaranteed loans, with the apparent aim of minimizing foreclosures and related insurance claims.

“We took the borrowers into account first,” said HUD general counsel Helen Kanovsky. “We think that that’s really the best thing for the FHA [insurance] fund as well.”

The agreement is HUD’s first involving settlement of claims in which a servicer failed to offer loss mitigation to borrowers. It does not, however, prevent HUD from seeking damages from B of A for unrelated origination and servicing failures.

“We fought for as narrow a [legal] release as possible and as much money as possible,” Kanovsky said.

Under HUD’s standard terms, borrowers must be less than 12 months delinquent to qualify for loan modifications. With the B of A settlement, the minimum of $10 million the bank agreed to pay will go to covering past-due arrearages and giving borrowers who are more than a year behind the possibility of qualifying for foreclosure alternatives.

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