Iowa Attorney General Tom Miller, leader of a 50-state probe of foreclosure practices, said a settlement is “closer” and that state and federal officials want a monitor to ensure that banks keep their promises.
The state attorneys general began an investigation in October as a response to revelations of faulty foreclosure procedures by mortgage servicers. The states and the U.S. Justice Department have been negotiating an accord with the five largest servicers including Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co.
A settlement with the banks should include a monitor to ensure they comply with the terms of any agreement, Miller said yesterday in a phone interview. A monitor would have “substantial authority” to enforce the terms, he said.
“One of the great challenges is enforcement,” Miller, a Democrat, said. “We have to make sure that they do what’s promised. That’s going to be very difficult.”
The state attorneys general are seeking “considerably more” than the $5 billion proposed by the banks as a settlement figure, he said. Payments by the banks should go toward mortgage principal reductions and compensating homeowners for wrongful foreclosures, said Miller, who declined to comment further about how much officials are seeking.
In March, state and federal officials submitted proposed settlement terms to the servicers, a group that also includes Citigroup Inc. and Ally Financial Inc., seeking funding for principal writedowns and standards for servicing loans and conducting foreclosures. Terms have been revised as the two sides negotiate.
“We’re getting closer” to a resolution, Miller said. He wouldn’t predict when an agreement would be reached. “It’s hard to put a time on it that would be accurate.”
The U.S. Treasury Department said yesterday that four mortgage servicers -- Bank of America, JPMorgan, Wells Fargo and Ocwen Loan Servicing LLC -- need “substantial improvement” under a federal program aimed at modifying mortgage loans for struggling homeowners. Treasury said it was withholding financial incentives for Bank of America, JPMorgan and Wells Fargo for poor performance.
Bank of America spokesman Dan Frahm, JPMorgan spokesman Thomas Kelly, Wells Fargo spokeswoman Vickee Adams and Gina Proia, a spokeswoman for Detroit-based Ally, declined to comment about Miller’s remarks.
“We consider our conversations with the AGs and agencies to be private, so we do not provide details,” Mark Rodgers, a Citigroup spokesman, said in an e-mail. Citigroup and JPMorgan are based in New York. Bank of America is based in Charlotte, North Carolina, and Wells Fargo is based in San Francisco.
Miller said it’s “likely” that principal reduction would be part of the agreement.
“Principal reduction is important to have the maximum effect of keeping as many homeowners in their homes as possible,” he said. Banks and investors would also receive more through partial payments than through foreclosures, he said. The issue is “part of the ongoing negotiations,” Miller said.
A group of Republican attorneys general, including Florida’s Pam Bondi and Greg Abbott of Texas, criticized the settlement proposal submitted to the banks, saying they opposed a deal that would fund principal reductions.
Four of the officials said in a letter to Miller in March that the proposal for principal reductions may foster an unintended “moral hazard.”
“The states are working pretty well together given there are 50 of us each separately elected by citizens of our states and have different views on things,” Miller said.
Representatives for Republican attorneys general who have criticized the plan over principal writedowns couldn’t be reached for comment today. Oklahoma Attorney General Scott Pruitt, one of the opponents, is “encouraged” by the settlement talks, his office said in a statement June 3.
“There is still a lot to be done, but the current climate is productive,” Diane Clay, Pruitt’s spokeswoman, said in the statement.
State and federal officials also are working with government mortgage companies Fannie Mae and Freddie Mac on the settlement, Miller said. Any deal that sets servicing standards will affect Fannie and Freddie as investors in mortgage-backed securities, though their support for the deal isn’t necessary, he said.
“We’re working with them to try to be on the same page on as many things as we can,” Miller said.
Officials are seeking to provide restitution to borrowers whose homes were improperly foreclosed on.
“That’s imperative that somehow they’re compensated,” Miller said.