By Karen Freifeld and Aruna Viswanatha
NEW YORK May 6 New York Attorney General Eric
Schneiderman said on Monday he plans to sue Bank of America
Corp and Wells Fargo and Co for violating the
terms of a settlement designed to end mortgage servicing abuses.
Schneiderman issued the announcement, which suggests
lawsuits could be filed against the banks within two months,
ahead of a widely anticipated report from the monitor for the
multi-state settlement, which is expected to be critical of
The planned action is the first involving allegations that
top banks, which agreed last year to provide $25 billion in
relief to homeowners and comply with a set of servicing
standards to atone for foreclosure misconduct, are not living up
to their obligations under the deal.
Schneiderman said that, since last October, his office had
documented 339 violations of standards - 210 by Wells Fargo and
129 by Bank of America - dictating the timeline for banks to
process mortgage modification applications.
Schneiderman said he would seek injunctive relief and an
order requiring the two banks to comply with the settlement. His
statement did not say he was seeking damages or penalties.
But it is unclear how far Schneiderman can take his efforts,
because they come outside the primary channel authorized by the
settlement for any potential violations.
The settlement authorized the monitor to first work with a
servicer to correct any potential violations and sue only if the
servicer does not fix the errors.
In an afternoon news conference, Schneiderman acknowledged
the authority provided to the monitor, but said he could still
"There is more than one cop on the beat," he said.
The action draws further attention to the continuing plight
of borrowers facing foreclosures some five years after the start
of the housing crisis. Some borrowers say they wait months for
word from their bank on a request to modify a loan, only to be
told their paperwork has been lost.
It also highlights the banks' lingering mortgage headache,
even if this latest move might not result in significant
additional monetary penalties.
"Wells Fargo and Bank of America have flagrantly violated
those obligations, putting hundreds of homeowners across New
York at greater risk of foreclosure," the attorney general said
in a statement.
A spokeswoman for Wells Fargo declined to comment. Bank of
America said in a statement that it takes seriously the
allegations of servicing problems and will work quickly to
Bank of America and Wells Fargo are among five banks that
agreed to the settlement in February 2012. At the news
conference, Schneiderman declined to say whether the other three
banks - JPMorgan Chase & Co, Citigroup Inc and
Ally Financial Inc - could face similar lawsuits, but said his
announcement had "implications" for the other servicers.
WATCHDOG REPORT COMING SOON
The National Mortgage Settlement was brokered between the
banks and 49 state attorneys general.
While the settlement's monitor has issued several reports on
monetary relief provided to homeowners under the settlement, an
upcoming report will be its first assessment of compliance on
troubled borrowers. That report, expected in the next few weeks,
will include how quickly banks must respond to requests for loan
The monitor, former North Carolina Banking Commissioner Joe
Smith, said in a statement on Monday that he appreciates
Schneiderman's interest in the issue. He also said he will use
the full force of his own power to hold banks accountable.
"Under the Settlement, there is a process that allows me to
conduct reviews of the banks' compliance and report them to the
public. I am following this process and look forward to sharing
my findings and enforcement activities in June," Smith said.
A committee comprised of federal regulators and more than a
dozen state attorneys general will have the first crack at
pursuing any potential litigation. U.S. Department of Housing
and Urban Development General Counsel Helen Kanovsky, whose
agency sits on the committee, said HUD takes violations of the
settlement seriously and expected "further action to be taken"
after Smith releases his findings.
Iowa Attorney General Tom Miller, who spearheaded last
year's settlement, said in a statement that his office has been
in discussions with Smith about several issues, including missed
Connecticut Attorney General George Jepsen, who is also on
the monitoring committee, said he was aware of many of the
issues raised by New York and will work with the committee to
ensure the banks comply with the settlement.
Some housing advocates welcomed Schneiderman's move ahead of
other states and the settlement's monitor.
"We hope this action by the AG will push other state and
federal regulators to draw a line in the sand against abusive
mortgage servicing practices," Josh Zinner, co-director of the
Neighborhood Economic Development Advocacy Project in New York,
said in a statement.
In an interview, Zinner said housing advocates were worried
that a lot of problems still remained since last year's
The February 2012 settlement released the banks from claims
over faulty foreclosure practices and the mishandling of
requests for loan modifications.
It was supposed to speed mortgage relief to homeowners in
need and provide $2,000 payments to borrowers who lost their
homes to foreclosure.