Fannie’s Star Program reveals big banks failed to meet minimum mortgage servicer performance requirements

According to a report released Tuesday by Fannie Mae, the big banks who love to act like “injured innocents” when it comes to making mortgage repurchase and indemnification demands on loan originators had their own substantial problems servicing the loans that they either originated or acquired from third parties.

Bank of America, Citigroup and JPMorgan Chase all flunked Fannie Mae’s test of mortgage servicers, failing to meet even the minimum requirements for performance in 2012. Wells Fargo and Ally Bank both received the equivalent of a “C” grade, signifying an average level of performance relative to their peers.

The poor performance of the top banks is surprising considering the top five mortgage servicers—B of A, JPMorgan Chase, Citi, Wells Fargo and Ally—each claimed in October that they had met 304 different servicing standards and reforms as part of the $25 billion national settlement with 49 state attorneys general and federal regulators. That settlement was designed to address servicing abuses that led to the robo-signing of foreclosure documents.

Fannie’s “Star” program, now in its second year, was designed to create standards and rank servicers based on their overall performance, customer service and foreclosure prevention efforts.

A call for further action

Leslie Peeler, Fannie’s senior vice president of national servicing, said the Star program was designed “to recognize top performers, not to call out,” poorer ones. Nevertheless, if servicers are rated in the lowest quartile, that “indicates unacceptable performance and Fannie may take action, including implementing improvement plans,” Peeler says.

Bear in mind that the big “aggregator” banks typically make loan repurchase or indemnification demands because of alleged losses suffered related to those loans. In a startling number of instances, they are notably reticent to share information about how those losses (if any indeed were suffered at all) came about. Servicing errors could, of course, be one means by which a loss could be sustained.

Yet another reason to tread exceedingly cautiously, and to demand necessary information, before acquiescing to a buyback or indemnification demand.