Five years after the mortgage meltdown sparked a wave of home foreclosures, millions of Americans are still in housing "limbo," battling to save their homes despite government programs meant to help them.
Courtney Scott is one of them. Having fended off three foreclosure attempts by her lender, she said she was hopeful that a recent national review of troubled loans ordered by bank regulators would help resolve her long-running effort to modify the loan on her modest suburban Atlanta home.
So the retired nurse and grandmother filled out the paperwork late last year, sent it in and waited.
In January, the government abruptly canceled the review, agreeing to settle a two-year-old enforcement action with 14 lenders over widespread mortgage processing violations. In return, the lenders agreed to make $3.6 billion in payments to borrowers who were harmed, averaging about $1,000 each. Scott got a letter this week which promised her a payment but didn't say how much, she said.
Like many of the more than four million homeowners originally targeted by the review, Scott is still living "in limbo," she said, and no closer to an affordable mortgage.
"I thought there was going to be some method to resolve issues that were still outstanding rather than just a payment," she said. "I mean a payment is great, but that's not really going to help. In my case I still need a loan modification."
More than two years after regulators confirmed widespread reports of abusive mortgage practices, the government is making only halting progress in fixing the problem, according to homeowners, their attorneys, housing counselors and public officials. It's not only a dilemma for the people caught in the foreclosure noose; it's also holding back a broader housing recovery and slowing the nation's economic recovery.
The scope of the systemic failure has been widely known for much longer, following widespread reports of lax procedures; flawed, inaccurate or missing documentation; and poor communication with borrowers. In April, 2011, the nation's top bank regulator, the Office of the Comptroller of the Currency, issued a sweeping enforcement action to address "failures and deficiencies" and ordered 14 lenders to fix them "swiftly and comprehensively."
A year later, targeting many of the same practices, the Department of Justice and 49 state attorneys general signed a detailed agreement with five of the nation's largest mortgage lenders to adhere to comprehensive new standards in dealing with mortgage borrowers, known as the National Mortgage Settlement.
Lenders were barred from foreclosing while a borrower was applying for a loan modification. Bank representatives notarizing documents had to personally review all relevant information. Lenders were required to provide timely information on the status of a loan and give homeowners a single point of contact, among other new rules.
But despite detailed new procedures and guidelines, lenders have yet to fully comply with the requirements, according to Joseph Smith, a former North Carolina banking commissioner appointed a year ago to monitor the mortgage lenders.
"Things are better, but we aren't there yet," he told NBC News. "There are too many examples of situations that are not acceptable."
That's also the conclusion of New York Attorney General Eric Schneiderman, who announced Monday his office had documented 339 violations of the new standards since October, 2012, by two of the nation's largest lenders, Wells Fargo and Bank of America.
"They feel like they can get away with anything now, let's face it," Schneiderman told CNBC. "Law enforcement has not done a very good job of telling the banks you're subject to the same set of rules as everyone else. And we're going to go after you when you violate the rules."
Bank of America said it would review the customer service complaints cited by Schneiderman "which we take seriously and will work quickly to address."
Wells Fargo said it "is committed to complete compliance with the National Mortgage Settlement and its associated standards' and "will continue to provide transparency into the progress we are making to provide relief to consumers."
Schneiderman said he believes violations of the new standards are widespread.
"I'm only suing on behalf of a few New Yorkers," he said. "I think this is a nationwide problem. And I think you will see more evidence of this as we proceed. "
But some attorneys defending homeowners also say they see little progress in adherence to the new standards.
"The foreclosure crisis is ongoing; the behavior of the banks hasn't changed," said Michael Wasylik, a Tampa attorney who defends homeowners in foreclosure actions. "This whole exercise is to convince the public that the problem is solved."
A more complete picture of the extent of ongoing violations may emerge later this month. That's when Smith is scheduled under terms of the settlement to issue a report on the five bank's performance in adhering to the standards. (Smith said that report may be delayed until early June.)
The settlement gives banks cited for violations a chance to correct any problems Smith finds. If they fail to do so, Smith can then bring them to the district court overseeing the settlement to press for fines or other legal sanction.
"It is a slow moving process relative to people concerns," said Smith. "People expected—which I understand—quick action but I can't promise that because of the way we're set up."
Though the pace of new foreclosures has subsided since the worst of the crisis, the pipeline has slowed to a crawl in many states. The average foreclosure now takes a record 477 days, according to RealtyTrac, a real estate research site. In New York, the slowest state, the average foreclosure takes nearly three years.
Another 70,000 new cases entered the pipeline in April, and more are on the way. Despite a tentative recovery in the housing market in some parts of the country, some 3 million borrowers are behind in their monthly payments and at risk of foreclosure, according to a recent report from the Congressional Budget Office.
The result is a steady trickle of distressed sales that continues to hold back a wider housing market recovery.
Many had high hopes that the government's review of more than four million troubled mortgages would help break the legal logjam that borrowers like Scott find themselves in. But after spending more than two years and $2 billion, regulators at the Office of the Controller of the Currency abruptly canceled the review in January.
In addition to issuing checks to homeowners who were harmed, lenders agreed to pay billions more in "soft dollar" help for struggling borrowers, including loan modifications. But the actual cost to lenders will be only a fraction of that amount thanks to the formula used to credit that relief.
Some members of Congress have criticized the OCC's decision to cancel the loan review and have asked the regulator for more information on how it arrived at the settlement amount when the scope of the damage to homeowners is still poorly understood.
"They have refused to give us the information we need to make a determination as to whether this figure is fair—and whether the categories (of damage) are fair," said Rep. Elijah Cummings, D-Md. "And there's no appeals process (for borrowers.)"
Cummings recently introduced a bill calling for a special monitor to oversee lenders' payments to homeowners who were harmed.
OCC officials have said they had collected enough information before the review was canceled to arrive at a fair level of compensation.
But a Government Accountabilty Office report last month didn't support that conclusion. The agency found that inconsistencies in the way loans were reviewed made it impossible to determine how many mistakes were made and how many borrowers were harmed.
"The data does not allow us to render any conclusions about error rates at a particular servicer or make comparisons across services despite what's been reported in the press," Lawrance Evans, director of financial markets and community investment at the GAO, told a Senate hearing last month
Meanwhile, Congress is about to revive a long-simmering debate over whether writing down the balances of government-backed mortgages would keep struggling borrowers in their homes, save taxpayers the cost of a default and stem the impact of future foreclosures on neighboring properties.
"Imagine if we removed these two or three million potential foreclosures how much more quickly the housing recovery would occur," said John Taylor, president of the National Community Redevelopment Coalition. "That's what's going to help this housing recovery accelerate and support the overall economic recovery in the country."
The debate over government relief to help struggling homeowners—which dates back to the $700 billion bank bailout in 2008—was revived last week when the Obama administration nominated Rep. Mel Watt, (D-N.C.), to replaced Edward DeMarco as head of the Federal Housing Finance Agency. The FHFA oversees the government's two sprawling mortgage agencies Fannie Mae and Freddie Mac. Together, the two agencies hold or guarantee some 57 percent of the roughly $50 billion in mortgage loans outstanding.
A year ago, DeMarco found himself at the center of a fierce debate after he rebuffed a Treasury department proposal to write down some loan balances. Some analyses, including a 2012 report by Freddie Mac's inspector general and a report this month by the Congressional Budget Office, have found that targeted principal reductions could save taxpayers billions of dollars.
But in June, DeMarco rejected the plan, arguing that the "anticipated benefits do not outweigh the costs and risks" to taxpayers, a decision promptly criticized by Treasury Secretary Tim Geithner.
Supporters of the idea say troubled borrowers aren't the only ones who would reap the benefits.
"There are millions of people heading toward foreclosure who—but for a principal reduction or interest rate cut—would remain as viable homeowners, paying real estate taxes and not further contributing to the deterioration of other properties in the neighborhood," said Taylor.
In December, Watt was one of 19 members of Congress who wrote a letter to the White House and Congressional leadership supporting the idea of writing down balances on some government-backed mortgages.
Watt's nomination to head the FHFA has already drawn opposition from some Senate Republicans.
"I could not be more disappointed in this nomination," said Sen. Bob Corker (R-Tenn.), a senior member of the Banking Committee, said shortly after the nomination was announced. "This gives new meaning to the adage that the fox is guarding the hen house."
Scott, meanwhile, says she and her lawyer are still trying to work with her lender to refinance her mortgage to a more affordable monthly payment. But her case is stuck in legal limbo, she said.
"We still don't know who is holding the title to this house," she said.
--By CNBC's John Schoen