On Tuesday, five of the nation's largest mortgage servicers became obligated to follow 304 "servicing standards" laid out in a national mortgage settlement earlier this year.
The settlement stemmed from allegations that the servicers — Wells Fargo, Bank of America, Citigroup, JPMorgan Chase and Ally Financial — abused borrowers in a rush to foreclose on a tidal wave of distressed properties during and after the recession.
The banks' bad behavior included allowing "robo-signing," the widespread practice of producing official foreclosure documents in an assembly-line fashion, without checking the documents' accuracy.
In addition to ensuring the integrity of foreclosure documents, the new standards require the servicers to provide a single point of contact to borrowers and eliminate the practice of "dual tracking," which has allowed the companies to pursue foreclosure while a borrower is actively seeking a loan modification.
The standards also dictate that the servicers must offer "complete and effective notification to borrowers of modification options available to them," Joseph A. Smith Jr., the administrator of the settlement, told the National Foundation for Credit Counseling on Monday in Charlotte, N.C.
Under the new rules, the servicers are supposed to treat foreclosure as a "last resort," not to be used until a homeowner has been evaluated "for other loss mitigation options first," according to a statement from the U.S. Department of Justice when the settlement was announced in February.
The settlement also requires the five companies to provide $25 billion in relief to consumers living in the 49 states that signed on to the agreement.
Maryland is expected to received about $1 billion in relief in the form of mortgage modifications and refinancing, principal reductions, deficiency waivers and short sale assistance.