April 12 (Bloomberg) -- The resolution of a 50-state probe of foreclosure practices shouldn’t block individual states from investigating the mortgage-servicing industry, according to the office of New York Attorney General Eric Schneiderman.
“Any settlement agreement should preserve the ability of attorneys general to follow the facts where they lead and not be precluded from conducting comprehensive investigations,” Lauren Passalacqua, a Schneiderman spokeswoman, said yesterday in a statement.
The statement came as chief law enforcement officials from some states attended a North Carolina gathering sponsored by the National Association of Attorneys General. In March, the attorneys general sent a 27-page term sheet to the biggest U.S. mortgage servicers, laying out possible changes to foreclosure practices, including new documentation rules and calling for a loan-modification program.
“The attorney general of New York has expressed some concerns about his ability to pursue cases outside of the settlement and we are working to see if we can address those concerns,” Geoff Greenwood, a spokesman for Iowa Attorney General Tom Miller, said in a telephone interview yesterday. Miller is helping to lead a state-federal probe of mortgage-servicers.
Greenwood declined to comment further on the discussions or details of a proposed settlement.
In an e-mail, he said he thinks all states as well as banks have “understandable concerns” about how a settlement may limit state actions. He said he didn’t know whether other attorneys general had talked to Miller about the issue. Some mortgage servicers, including Bank of America Corp., have been sued by states.
“The executive committee will discuss these issues, and we undoubtedly will attempt to work through them as we continue our negotiations,” he said in the e-mail.
The largest U.S. mortgage servicers began signing agreements with regulators to improve procedures after federal investigations found they conducted foreclosures without proper review or complete documentation, two people with direct knowledge of the negotiations said last week. These agreements are separate from the 50-state probe.
The so-called consent decrees, which could be signed by as many as 14 servicers including Bank of America Corp. and Wells Fargo & Co., require companies to strengthen their systems for handling foreclosure documents and communicating with borrowers who are behind on their payments, said two people briefed on the matter, who spoke on condition of anonymity because the agreements aren’t public. The deals also require firms to improve auditing and risk-management practices, the people said.
Banking regulators issuing the consent decrees -- the Federal Reserve, the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the Federal Deposit Insurance Corp. -- are moving forward with procedural remedies while continuing negotiations over possible monetary penalties, they said.
Schneiderman, 56, last week issued subpoenas to Pillar Processing LLC and the law firm of Steven J. Baum, according to a person familiar with the matter. Baum’s firm specializes in foreclosures in New York state. Pillar shares an address with the law firm and processes foreclosure paperwork.
The attorney general asked for documents submitted on behalf of the law firm in court and to parties representing individuals in foreclosure, according to the person, who declined to be identified because the matter isn’t public. He is also seeking documents from Baum relating to procedures governing Pillar’s services to the law practice, said the person. The New York Times reported on the subpoenas April 9.
Passalacqua declined to comment on the Baum and Pillar subpoenas and probe.
Baum’s law firm, located in Amherst, New York, has attracted lawsuits and fines for its actions during the housing crisis. The firm has been accused of overcharging, filing false documents and representing parties on both sides of a mortgage transfer.
In December, in response to questions about his work, Baum wrote that “consumer activists and attorneys representing homeowners have their own agenda in this process, including degrading the legal work we conduct on behalf of our clients.”
Earl V. Wells III, a spokesman for Baum, said yesterday that the firm is cooperating fully with the attorney general’s office. He declined to comment further. Tailwind Capital LLC, the private equity firm that owns Pillar, didn’t immediately return a call for comment.
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