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.
