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Banks Accused of Violating Loan Modification Settlement

Updated on October 18, 2015

Banks Allegedly Try to Evade Loan Modification Rules

Just as law firms that focus on foreclosures cut back their staffing, new evidence that banks are acting in bad faith with real estate loan modifications could generate more business for them.

The recession that started in 2007 was prompted by irresponsible lending practices by big banks, whose loose credit requirements led to widespread foreclosures.

A Justice Department lawsuit against Bank of America, Countrywide and other lending institutions led to a $25 billion settlement in which they agreed to modify the loans of customers hurt by their lending practices.

However, a new media report shows lenders are violating the settlement and rules by the Consumer Financial Protection Bureau to prevent another financial meltdown, according to a report by The Legal Forum (www.legal-forum.net).

In some cases, banks are demanding excessive paperwork from customers to avoid loan modifications or promising to help them while secretly trying to foreclose on their homes, according to a report by Politico. The excessive paperwork often includes repeated demands for the same information or requirements to fill out forms that are not needed for loan modifications.

Although the report is bad for consumers, it could mean law firms can expand their real estate litigation and foreclosure practices.

North Carolina Attorney General Roy Cooper summed up the 2012 settlement by saying, If homeowners get the runaround for a modification, if homes are foreclosed before other options expire, the monitor and the courts can step in and make it right.

A trend first noted in the courts last year shows homeowners appear to be getting the runaround Cooper described.

Since early 2014, borrowers have filed more than 60,000 complaints about lenders hurrying to foreclosure on them or mishandling modification requests.

In July of this year, more than 469,000 U.S. homeowners were in some stage of foreclosure and another 1.3 million in serious delinquency, according to real estate data firm CoreLogic.

The House Oversight Committee is beginning to look at whether lenders are complying with the settlement agreement. Some members of Congress say it was written in a way that gives banks too much discretion.

Banks Once Again Accused of Shady Loan Deals

A media report says lenders are using loopholes in a 2012 settlement with the government to foreclose on homeowners unnecessarily.
A media report says lenders are using loopholes in a 2012 settlement with the government to foreclose on homeowners unnecessarily.

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