State attorneys general are pushing lenders to reduce loan balances and said they hope to reach a final settlement with banks over their mortgage-servicing and foreclosure practices within two months.
The states along with federal agencies submitted a 27-page settlement proposal last week to the country’s five largest mortgage servicers and aim to reach an agreement that leads to more loan modifications for homeowners having trouble making their payments, attorneys general said yesterday.
“The result we come to can have an impact on the housing market and the economy,” North Carolina Attorney General Roy Cooper told reporters at a meeting of attorneys general in Washington. “We don’t want uncertainty to linger very long.”
State attorneys general and federal agencies, including the Justice Department, the Treasury Department and the Consumer Financial Protection Bureau, submitted the proposal as a starting point for negotiating a settlement with the servicing industry, said Iowa Attorney General Tom Miller, who is helping to lead the talks with the banks.
Miller declined to comment about the role of banking regulators in the negotiations. Officials are talking with investors in mortgage-backed securities, Miller said.
“The investors are particularly important in the modification process,” Miller said. “They own the loans they’re going to be modifying in certain ways including, for some of them, principal reduction.”
Home Loan Share
The companies that received the settlement terms from officials are Bank of America Corp., Wells Fargo & Co., JPMorgan Chase & Co., Ally Financial Inc. and Citigroup Inc. They service 59 percent of U.S. home loans, Miller said.
Jumana Bauwens, a Bank of America spokeswoman, declined to comment, as did Mark Rodgers, a Citigroup spokesman, and Gina Proia, an Ally spokeswoman.
Vickee Adams, a Wells Fargo spokeswoman, and JPMorgan spokeswoman Jennifer Zuccarelli didn’t immediately respond to requests for comment yesterday.
Miller said that investors agreed to principal reductions during the 1980s farm crisis, knowing that a partial payment from distressed landowners often would yield more than a foreclosure.
“It’s a question of will enlightened self-interest prevail,” Miller said. “The compromise to modify loans in the right situation is economically very much in the interests of investors and owners.”
The settlement terms from officials don’t include a dollar figure for civil penalties nor do they mandate loan modifications, Miller said. The goal is to reach a final agreement in a couple months, he said. He declined to comment about possible monetary penalties against the banks.
“I think we’re all aware of what’s going on behind the scenes here, where the government is trying to force banks to assume obligations which they legally are not responsible for,” Representative Spencer Bachus, chairman of the House Financial Services Committee, said yesterday at the Institute of International Bankers annual conference in Washington. “We have rule of law in our country, and some of these negotiations, I believe, violate that law.”
The settlement sheet seeks to force procedural changes on 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. Homeowners trying to avoid foreclosure sometimes complain of a move to foreclose on their properties while they are negotiating a modification.
Three Loan Payments
Borrowers who are enrolled in a trial period for a loan modification under a federal program and make three loan payments on time would have to receive a permanent loan modification, according to the proposal. The document would give attorneys general and the Consumer Financial Protection Bureau responsibility to police servicers’ compliance with any settlement.
The 50 state attorneys generals received an update at yesterday’s meeting on the investigation into the mortgage-servicing practices of banks and the efforts to reach a settlement that could overhaul their procedures. The states began the probe last year after complaints that financial institutions submitted faulty paperwork in foreclosure cases.
Homeowner activists protested yesterday outside the meeting of the attorneys general, criticizing banks and demanding state and federal officials reach a tough settlement with the companies. They also called for criminal prosecutions.
Tam Ormiston, a deputy attorney general in Iowa, declined to comment yesterday about the settlement discussions. He didn’t rule out criminal prosecutions.
“The question’s been raised for all regulators and all enforcement officials,” he said. “I don’t know how that’s going to play out.”