Usually, when people ask about the second mortgage settlement, they’re referring to the 2012 National Mortgage Settlement. Shortly after the 2008 housing crash, which triggered the Great Recession, the country’s largest mortgage servicers agreed to end some controversial practices that helped create that crisis. These servicers also agreed to pay $25 billion.

Occasionally, people are referring to their own issues with HELOCS (home equity lines of credit), or second mortgages. In the 1990s, the government drastically changed the rules in this area, allowing many people to use the equity in their homes like they use ATMs. Many homeowners later regret these decisions, which mortgage brokers usually talked them into.

NMS Violations

As one might expect in a $25 billion settlement, the NMS contains too many provisions to be listed here. Some of the major ones include:

  • Dual Tracking: This practice is considering a borrow for a loan modification while simultaneously pursuing foreclosure. Most large servicers have separate modification and foreclosure departments. So, dual tracking is very common, even ten years later.
  • Robo-Signing: The mortgage crisis started, in part, because employees assumed documents were true and signed them, as opposed to reviewing them and signing them. Some banks literally used robots (computers) to sign these documents. If these homeowners challenge these foreclosures, they don’t hold up in court.
  • Failure to Inform Homeowners: Under the NMS, servicing companies must inform homeowners, or would-be homeowners, if their files are missing documents and give them a chance to make things right. Many of these people don’t find out about this problem until their second mortgage applications are denied or their properties are in foreclosure.


Some NMS violations are little more than technicalities. Others are serious issues that significantly affect homeowner rights.


If a servicing company violates NMS provisions related to a second mortgage and tries to foreclose on a property, the homeowner must usually either file bankruptcy to stop the proceeding or file a request for a temporary restraining order and hope the judge grants the request and grants the TRO. Neither option is particularly attractive.


Lender and Broker Fraud


Basically, fraud is knowingly making a false statement with the intent to gain financially. Misleading or pressuring people into getting second mortgages that they really cannot afford to pay certainly meets this definition.


Law enforcement agencies, like the FBI, aggressively investigate lender fraud allegations, especially if the political winds blow in a certain direction. Criminal cases punish unscrupulous lenders, but they usually do nothing to compensate victims. These victims must file civil suits to obtain this compensation.


Many second mortgage brokers are little more than hucksters. These individuals usually work on a commission basis. Therefore, second mortgage broker fraud is rampant, but it’s very difficult to sue these individuals. When these transactions go sideways, the broker is usually long gone.

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