Katherine Porter

Katherine Porter

Today is the first day that the servicing standards for the foreclosure fraud settlement go into effect. The standards, 304 in all, include large changes to the servicer business model, like banning robo-signing, mandating quick decision making on loan modification, providing borrowers with options to foreclosure, establishing a single point of contact and ending “dual tracking” (negotiating a loan modification with a homeowner and starting the foreclosure process on them at the same time). In a negotiated process, the big five servicers had a choice of taking 60, 90 or 180 days to implement the standards. The servicers took the full 180 days. But that ends October 3.

As a prelude to this, Katherine Porter, a professor at Cal-Irvine and the foreclosure monitor appointed by California AG Kamala Harris to oversee the settlement in the Golden State, released a report showing the progress of the servicers on one standard in particular – dual tracking. Her report shows that servicers definitely took the full 180 days to implement the ban on dual tracking. A chart on page 3 of the report revealing the number of dual tracking complaints received by the monitor on a monthly basis shows that the percentage of overall complaints from dual tracking rose steadily for the first four months, peaking at nearly 60% of all complaints in August. By September that number fell to 25%. This is somewhat anecdotal, as many people may not file a complaint. But it does show that the servicers took their time with implementation. And this has real consequences; dual tracking causes foreclosures, by putting borrowers in a race to modify their loan before the foreclosure process closes. And self-interested servicers determine the outcome of that race.

“When I make the graph again, it better have a different shaping,” Porter said to me in an interview yesterday. Porter expressed tempered optimism that on dual tracking and other standards, the servicers took time to get their systems overhauled but are moving in the right direction. And she promised to remain vigilant. “The point of the paper was to bring visibility, to let them know that I’m counting… there was a timeline and the timeline’s over.”

Porter sees dual tracking as a bellweather. In order to eliminate it, a servicer must fix a number of their systems – communication with borrowers, training of staff, software and technology – and especially their mindset, which trends toward foreclosure over modifying loans. “You can’t just bucket people into the foreclosure system,” Porter said. “You have to integrate your business, get both hands working together. It is a major retooling.”

Much of the reason that there’s been progress at all in California, I would say, comes from Porter’s dogged determination. California is the only signatory to the settlement with their own foreclosure monitor; there’s a national monitor, North Carolina banking commissioner Joseph Smith, but he doesn’t get involved at the granular level. Porter assumed her position in almost the manner of a social worker or housing counselor. The report is littered with stories of homeowners calling the California Monitor’s office to complain, and the office getting involved by contacting the mortgage company and fixing the problem. Here’s just one example from the report:

Robert of Lakeside had been trying to communicate with his mortgage company for months. He had grown weary of his mortgage company’s repeated requests that he be patient. Although Robert had received notice that he might be eligible for relief under the National Mortgage Settlement, and had a loan modification application pending, the mortgage company set his home for a foreclosure sale. He turned to the California Monitor Program for help. Now, we are working with Robert’s mortgage company to make sure his foreclosure sale remains postponed until his file is properly reviewed.

There’s nobody else in the country empowered with a monitor position, with the ability to impose a variety of non-compliance measures on servicers, doing this work. “With every homeowner I helped,” Porter said, “we asked, ‘what does this tell us about the settlement?’ We’re not able to help everyone, but we can use the experience to give value to this work.”

Perhaps that’s why these standards appear to be moving forward, however agonizingly, in California. Recall that banks promised to end dual tracking in Congressional testimony late in 2010, and that the Office of the Comptroller of the Currency signed a consent order in April 2011 that, among other things, was supposed to end dual tracking. None of this happened. Under the settlement, the servicers had to actually negotiate a plan of action to get this done, with a hard deadline and verifiable metrics. “The settlement is very specific about what they have to do,” Porter said. She calls the next few months an important test for whether servicers can retool their operations.

That’s definitely true. But in the other 49 states in the country, there isn’t an indefatigable Katherine Porter looking over the shoulder of the servicers at the ground level. California did the right thing to hire its own monitor, and definitely the right thing to hire Katherine Porter. Moreover, because of the passage of the Homeowner’s Bill of Rights in the state, which permanently imposes many of the settlement standards for servicing (the settlement standards go away after three years), it puts more pressure on servicers to change their business model in California. I fear for the other states lacking such a champion for homeowners. If anything can be learned from the practice of servicers over the years, it’s that if you give them 180 days, they’ll steal for 179. If you give them one state with a tough cookie forcing them to comply, they’ll steal in the other 49.

California’s massive size could force conforming here. We’ve seen in other areas that when companies must make things one way for California, they tend to do it for the whole country, in the interest of uniformity. I’m not sure that will work for servicers. But Porter explained the importance of this. “This is a big day for homeowners,” she said. “At their best, the reforms are about transforming the experience of homeownership, to make it less stressful and more efficient. There’s a real potential here to help families.”