Virginia’s attorney general said his state is among “at least a dozen” that don’t back a proposal to resolve a nationwide probe of foreclosure and mortgage-servicing practices.
There isn’t consensus among all 50 state attorneys general about the terms of the settlement proposed to U.S. banks, Virginia Attorney General Kenneth Cuccinelli, a Republican, said yesterday in a phone interview. He declined to name which states, aside from his own, oppose parts of the plan.
“When some attorneys general found out what was being agreed to, they had a great degree of unease over it,” Cuccinelli said.
Oklahoma also opposes the proposed federal-state settlement in its current form, Attorney General Scott Pruitt, a Republican, said in a phone interview. Like Cuccinelli, Pruitt said he opposes requiring loan principal reductions, a move he said would force servicers to violate their contractual obligations to mortgage investors.
“I’m concerned that what started out as an effort to correct specific practices harmful to consumers has morphed into an attempt to fundamentally restructure the mortgage loan industry in the United States,” he said.
Federal agencies and state attorneys general on March 3 delivered a 27-page settlement proposal to the country’s top mortgage-servicing companies that would set standards for how they conduct foreclosures and service loans. Those banks include Bank of America Corp. (BAC), JPMorgan Chase & Co. (JPM) and Wells Fargo & Co. (WFC)
The terms would force procedural changes on the servicers, including banning companies from initiating foreclosure proceedings while a loan modification is pending, providing borrowers with a single point of contact, and informing borrowers of denied modifications in writing.
Borrowers who are enrolled in a trial loan modification under a federal program and make three loan payments on time would get a permanent loan modification under the proposal. The document would give attorneys general and the Consumer Financial Protection Bureau responsibility to police servicers’ compliance with any settlement.
Geoff Greenwood, a spokesman for Iowa Attorney General Tom Miller, declined to comment about the criticism from Virginia and Oklahoma. Miller, a Democrat, has taken a lead role in the investigation and settlement proposal, which will be used in further negotiations with the banks.
The terms would impose documentation requirements on banks that go beyond Virginia law, Cuccinelli said. A “major problem” is that government-owned mortgage companies Fannie Mae and Freddie Mac aren’t involved in the negotiations, he said.
“They’re going to be a factor here, and to not include them is just not acceptable to me,” he said.
U.S. House Republicans also criticized the proposal.
The settlement term sheet says “a substantial portion of monetary relief” from the banks will go toward loan modifications, including principal reductions. It says the subject is “reserved for further discussion” and doesn’t specify a dollar amount.
Miller in a March 7 press conference pointed to principal reductions agreed to by mortgage investors during the 1980s farm crisis.
‘The Right Situation’
“The compromise to modify loans in the right situation is economically very much in the interests of investors and owners,” he said.
Pruitt, the Oklahoma attorney general, said there are practices by mortgage servicers that need to be fixed such as taking steps to foreclose on a home while talking to the borrower about a loan modification, which is known as a “dual track.” The current proposal goes too far, he said.
Cuccinelli said principal reductions “sounds like a welfare discussion, not a regulatory discussion. That’s not the appropriate role for attorneys general.”
He said some states could propose an alternative plan.
To contact the reporters on this story: David McLaughlin in New York at firstname.lastname@example.org;
To contact the editor responsible for this story: David E. Rovella at email@example.com.