WASHINGTON — Sen. Elizabeth Warren (D-MA) has launched a federal inquiry into whether major banks may have improperly counted forgiven second mortgages toward regulatory settlement obligations — even after those same loans ended up in the hands of debt collectors seeking to foreclose on homeowners.
Warren, the top Democrat on the Senate Banking, Housing and Urban Affairs Committee, sent a letter last week to the independent monitor of the 2012 National Mortgage Settlement. She requested detailed records on mortgages that regulators believed had been extinguished under that landmark agreement, which required the nation’s largest servicers to compensate borrowers and reform foreclosure practices after the 2008 financial crisis.
In her letter, Warren said recent reporting has shown debt buyers quietly acquiring dormant second-lien mortgages that borrowers thought were erased and later using them to pursue repayment or foreclose as home prices rose.
The ‘Concern’
“Given how many second mortgages were extinguished as part of the National Mortgage Settlement, I am concerned that banks may have received credit for extinguishing second mortgages in the settlement, when in fact they sold those loans to debt collectors,” she wrote.
Warren’s request seeks records related to the extinguishment of second mortgages under the settlement and other relevant agreements, with a deadline of Jan. 7, 2026.
‘Blindsided’ Homeowners
The investigation comes amid growing scrutiny of so-called “zombie” second mortgages — long-dormant junior liens from the housing boom that homeowners believed were satisfied, but that collectors later revived. Reports suggest millions of such loans remain a threat, in some cases with accumulated interest more than doubling the original balance, catching borrowers off guard, according to analysts.
Critics say the issue exposes gaps in the enforcement of mortgage relief efforts after the financial crisis. Consumer advocates argue that homeowners who received tax documents or other notices indicating a debt’s cancellation were entitled to rely on those records.
The Settlement
The National Mortgage Settlement involved the five largest mortgage servicers, including Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally, which collectively forgave billions in second-lien debt and paid billions more in consumer relief and penalties. The terms allowed servicers to earn credit toward their obligations by extinguishing certain loans.
The Senate Banking Committee said in its statement that Warren’s inquiry underscores lingering concerns about the legacy of the 2008 housing crisis and the protections afforded to borrowers. It also highlights broader debates over how to police long-dormant mortgage debt and prevent what advocates call predatory collection practices.
