* Former state banking commissioner hiring staff, firms
* Judge approved $25 billion deal last week
* Banks have started contacting customers
By Rick Rothacker
April 9 The man charged with making sure U.S.
banks comply with a $25 billion mortgage settlement has a
website, one employee and subleased space in a Raleigh, North
Carolina, office tower.
But after a judge's approval of the pact last week, Joe
Smith said on Monday he will move quickly to add staff, hire
professional firms and make preparations for issuing reports on
how banks are meeting new standards for working with borrowers.
Federal officials and attorneys general from 49 states
reached the settlement with five lenders in February to resolve
foreclosure abuse allegations.
The bulk of the settlement with Bank of America Corp
, Wells Fargo & Co, JPMorgan Chase & Co,
Citigroup Inc and Ally Financial will come in the form of
up to $17 billion in loan modifications for distressed
borrowers, but the pact also requires lenders to meet new
mortgage servicing standards going forward.
Smith was North Carolina's banking commissioner from 2002
until February, when he resigned to become the settlement's
monitor. He was recruited by the attorneys general of North
Carolina and Iowa, who helped spearhead more than a year of
negotiations with the five lenders.
"I'm under no illusion that this will solve all the
problems, but I do think this will help us get to a better
mortgage industry," Smith said.
Smith held a group meeting with the five lenders in
Charlotte, North Carolina in March and a one-on-one session with
officials from Ally Financial last week in Raleigh. He plans to
meet with the other banks individually by early May.
Smith will begin reviewing data submitted by the banks this
year and issue his first report on their performance early next
year. The banks are required to report their compliance with
servicing standards for foreclosures, loan modifications and
other dealings with borrowers. They will also have to disclose
how many borrowers they have assisted through consumer relief
If banks are found to be making errors above certain
thresholds, they will be given a chance to fix the violations.
But the settlement does have some enforcement teeth. The
agreement's monitoring committee of state and federal officials
can seek civil penalties of up to $1 million for first-time
violations and up to $5 million for additional ones.
Some critics have said the settlement gives the banks too
much leeway, including error rates of up to 5 percent on loan
modifications. Smith said his office will aim to do better than
the minimum and pointed out that the settlement doesn't preclude
private consumer complaints.
The Office of Mortgage Settlement Oversight has a $3.75
million budget through June 30 funded by the five servicers.
After that, Smith will prepare annual fiscal-year budgets, also
to be funded by the banks. Smith's annual salary is $375,000.
So far, he has hired a treasurer/controller, but isn't sure
how big of a staff he will eventually have. He plans to use
outside law firms, accounting firms and other contractors for
some of the work.
The job is expected to last four years, including the time
to prepare the office's final report. Since leaving his bank
commissioner post, Smith has also joined the Raleigh law firm of
Poyner & Spruill, but he expects most of his time will be spent
as monitor. The settlement agreement says the monitor cannot go
to work for any party to the agreement for two years after
The office's current website -- provides basic information about the monitor's role, but
Smith plans to add more for consumers, including ways for them
to submit information and interact with his staff. His office
will be a nonprofit that files public financial statements.
Monitor reports will also be public, although some material may
be kept confidential, including information considered
proprietary to the banks.
Banks involved in the settlement also say they have started
preparations for providing expanded loan modifications and
refinancings required under the settlement.
Wells Fargo, the largest U.S. mortgage servicer, said
starting Monday it will mail letters to customers who qualify
for a refinancing under its expanded programs. Options for other
customers will become available in coming months.
Bank of America said it has started reaching out to
customers already in the loan modification process about its
principal reduction program. This month, it will start
contacting more than 200,000 customers identified as being
eligible for the program. It is still finalizing plans for its
JPMorgan Chase has started reviewing customer eligibility
for principal reduction and this month plans to contact
customers about refinancings. Citigroup and Ally also said they
have started implementing the settlement.