Bank of America Corp. faces increased pressure from two attorneys general to change its mortgage-servicing and foreclosure practices as states said the bank and four other servicers may face $17 billion in claims.
Utah Attorney General Mark Shurtleff accused Bank of America of breaking state law, while Connecticut Attorney General George Jepsen said the bank failed to fix “well-documented” problems in its mortgage-servicing business, according to letters released by their offices yesterday.
Their demands, along with subpoenas issued to Lender Processing Services Inc. by attorneys general in California and Illinois, were made public the day after state officials told the five largest mortgage servicers they may face civil lawsuits seeking $17 billion if they don’t settle the nationwide investigation, according to a person familiar with the matter who declined to be named because the talks are private.
The moves by states show attorneys general are aggressively targeting the mortgage servicing industry even after banks reached settlements with federal regulators, Kurt Eggert, a professor at Chapman University School of Law in Orange, California, said in an interview.
“It’s realistic that if the banks don’t craft some kind of settlement that they will face significant lawsuits in some states,” Eggert said. “There will be some states where the attorney general says ‘I’m not going to do that,’ but I think there will be a significant number of states where the attorney general will want to do that investigation and will want to bring lawsuits. I think we’re seeing actions in that direction.”
Attorneys general from all 50 states announced an investigation last year following claims of faulty foreclosure practices by banks. State officials and federal agencies, including the Justice Department, are negotiating a nationwide settlement with the five largest mortgage servicers: Bank of America, JPMorgan Chase & Co. (JPM), Citigroup Inc. (C), Wells Fargo & Co. (WFC) and Ally Financial Inc.
At a May 24 meeting, state legal officers told the banks they will face an estimated $17 billion in claims if the inquiries result in civil lawsuits, according to the person. Negotiators for the banks said they are prepared to dispute such demands in court, the person said.
Geoff Greenwood, a spokesman for Iowa Attorney General Tom Miller, declined comment. Miller is leading negotiations for the states.
New York Attorney General Eric Schneiderman is investigating banks’ mortgage securitizations, and California Attorney General Kamala Harris announced May 23 that she has established a mortgage fraud task force.
“It’s clear that servicers have done a lot of bad things and they haven’t been called to account for it yet,” Eggert said. “A state attorney general who really wants to do some digging can find a lot of bad actions by servicers and the question has always been who is going to do the digging and who’s going to find what facts are there.”
Utah and Connecticut this month sent letters to Charlotte, North Carolina-based Bank of America complaining of illegal or inadequate practices.
Utah’s attorney general claims the bank’s ReconTrust Co. unit isn’t meeting legal requirements for conducting home foreclosures. The letter to Bank of America Chief Executive Officer Brian Moynihan is dated May 19 and was released yesterday by the attorney general.
“All real estate foreclosures conducted by ReconTrust in the state of Utah are not in compliance with Utah’s statutes, and are hence illegal,” Shurtleff wrote.
ReconTrust must be a member of the state bar or a title insurance company to conduct its foreclosures, according to the attorney general.
“ReconTrust will continue to handle foreclosures in compliance with applicable laws,” Jumana Bauwens, a Bank of America spokeswoman, said in an e-mail. “Bank of America makes every effort to reach out to delinquent customers to offer home retention options as well as foreclosure avoidance programs.”
Jepsen of Connecticut said Bank of America, the biggest U.S. bank by assets, “is failing to devote adequate resources” to its mortgage-servicing business in the state, according to a May 20 letter released by his office yesterday.
Mortgage borrowers seeking help are experiencing “significant difficulties” with the bank, according to the letter. Jepsen is helping to lead settlement negotiations with mortgage servicers as part of the 50-state investigation.
“Despite having had more than two years to ‘right-size’ your staff and establish effective procedures and systems, Bank of America (BAC) has so far not prevented even the most common consumer complaints,” Jepsen wrote to Moynihan.
Bank of America officials recently met with Jepsen to discuss “mortgage-related concerns,” T.J. Crawford, a company representative, said in an e-mail. The bank has worked with local governments and counseling organizations in the state to educate homeowners, according to Crawford.
“Since January of 2009, we have expanded the staffing level in default servicing three-fold, and approximately 30,000 are now dedicated to this area,” Crawford said.
Harris, California’s attorney general, said she subpoenaed Lender Processing as part of her investigation into so-called robo-signing, the practice of signing foreclosure documents without verifying their accuracy.
Illinois Attorney General Lisa Madigan issued subpoenas to Lender Processing and Nationwide Title Clearing Inc., she said yesterday.
“Foreclosure became a rubber-stamping operation that robbed many homeowners of the American dream without a fair and accurate process,” Madigan said in a statement. “California homeowners have been exposed to fraud and crime at every step of the mortgage process,” Harris said in a separate statement.
Michelle Kersch, a spokeswoman for Lender Processing Services, based in Jacksonville, Florida, didn’t return a call seeking comment yesterday.
“Nationwide Title Clearing has not yet been served a subpoena from the Illinois attorney general and therefore cannot comment on the specifics at this time,” Cassandra McSparin, spokeswoman for the Palm Harbor, Florida-based company, said in an e-mailed statement. “The company intends to cooperate with the attorney general’s office to the fullest extent of the law.”
Nationwide’s mortgage assignment documents and procedures have been “thoroughly audited and examined for accuracy,” McSparin said.
Madigan said she will investigate reported allegations that Lender Processing Services and Nationwide Title Clearing engaged in robo-signing and would include a “complete review of the accuracy of the systems and services” they supply to large lenders.
Lender Processing provides loan servicing support for more than 50 percent of all U.S. mortgages, with a principal balance of more than $4.5 trillion, Madigan said. Nationwide provides services to eight of the top 10 lenders and servicers in the U.S., she said.
“Nationwide is not a foreclosure services company and does not prepare foreclosure specific affidavits, such as those to evict people from their homes, and has never done so,” McSparin said.
To contact the reporters on this story: David McLaughlin in New York at firstname.lastname@example.org; Margaret Cronin Fisk in Detroit at email@example.com; Dawn Kopecki in New York at firstname.lastname@example.org;