Banks Face Scrutiny As “Zombie” Second Mortgages Trigger New Foreclosures – NMP Skip to main content

Banks Face Scrutiny As “Zombie” Second Mortgages Trigger New Foreclosures

Dec 17, 2025
Banks May Have Sold Zombie Mortgages

Sen. Elizabeth Warren is seeking records to determine whether major banks violated the National Mortgage Settlement by selling supposedly extinguished second mortgages that later resurfaced as “zombie” debts leading to foreclosures

Sen. Elizabeth Warren (D-MA), Ranking Member of the Senate Banking, Housing, and Urban Affairs Committee, has formally requested detailed records concerning whether major banks may have sold mortgages that were supposed to be extinguished under federal settlement agreements to third-party debt collectors.

Sen. Warren’s letter to Joseph A. Smith Jr., independent monitor, Office of Mortgage Settlement Oversight, focuses on “zombie” second mortgages that, despite documentation indicating cancellation, have resurfaced in the hands of debt buyers and are now being used to pursue foreclosures against unsuspecting homeowners. 

The inquiry targets compliance with the 2012 National Mortgage Settlement, a $25 billion accord between the federal government, state attorneys general, and the largest mortgage servicers — including Bank of America, JPMorgan Chase, Wells Fargo, Citigroup, and Ally Financial. Under that settlement, servicers extinguished more than $15 billion in second mortgages and were credited for doing so toward their obligations. Homeowners were meant to benefit from the removal of these secondary liens, allowing them to move forward without lingering obligations.  

However, recent reporting has revealed that a significant volume of these second mortgages was sold to debt-collecting firms for nominal sums. As property values have risen, investors appear to be seeking repayment and initiating foreclosure actions on these long-dormant debts, often years after homeowners stopped receiving statements and believed the loans were gone. Some homeowners also received tax documents and credit report updates indicating cancellation, only to later find that the debt remained enforceable. 

“Now, Americans who thought they were doing everything right learned, in many cases many years later, that debt collectors seeking to exploit the increase in their home valuations were going to foreclose on their homes,” said Sen. Warren in her letter.
Warren expresses concern that banks may have improperly taken credit for mortgage extinguishments in the settlement, while still disposing of the underlying loans in ways that expose homeowners to renewed foreclosure risk. She has asked the settlement’s independent monitor to produce relevant records by January 7, 2026, to clarify how these loans were handled and whether servicers complied with the settlement’s requirements.



 

About the author
Published
Dec 17, 2025
New Appraisal Rules Could Vary By Lender Under GSE Exception

Fannie and Freddie are giving some lenders more time to adopt UAD 3.6, meaning mortgage brokers may need to navigate different appraisal requirements across wholesale partners

Credit-Score Competition Could Expand Beyond FICO, VantageScore

CHLA sees new Fannie and Freddie score disclosures as a first step toward more competition, while lenders are already finding different borrower outcomes under today's models

Mortgage AI Survey Finds Monitoring Gap At Smaller Lenders

Only 40% of smaller lenders surveyed reported ongoing AI monitoring, compared with 80% of larger lenders, as a new state examiner guide details the records regulators may request

Fannie Changes How Rent From A Former Home Counts

Fannie now prohibits leases for departing residences and permits market-analysis tools instead of Form 1007, creating a key documentation difference from Freddie Mac

ACES Targets Loans Traditional QC Samples May Miss

New population-testing technology applies lender-defined rules across selected origination and servicing records, then directs flagged files to human reviewers

Sep 21, 2026
The Risk Your Credit Score Can't See

Place-based market risk can produce dramatically different default outcomes among borrowers with nearly identical credit profiles

Sep 17, 2026