Foreclosure Deal Deadline Arrives
U.S. states that balked at liability releases in a proposed $25 billion nationwide settlement over bank foreclosure practices must decide today whether its mortgage relief and reforms are worth legal claims they’ll lose.
While some states have already announced their intention to sign the deal, others including California Attorney General Kamala Harris have yet to publicly commit in part due to terms that protect the banks from future litigation. Without Harris, the deal’s value will drop by several billion dollars, according to a person familiar with the matter.
The agreement is “beyond fixing,” said George Goehl, executive director of National People’s Action, a network of community organizations which advocates for fair lending and affordable housing.
“People are very disappointed in what this is going to be both in terms of dollars and release of claims,” Goehl said in a telephone interview. “We’re giving away the store.”
Most states don’t have the resources to go it alone and fight the banks in court, said James Tierney, director of Columbia Law School’s National State Attorneys General Program. States such as California that may reject the agreement must decide whether the time and money needed to fight for a better deal is worth it, given that the settlement provides immediate relief for homeowners, he said.
“How long does it take and how much better?” Tierney said of a state pursuing its own deal. “Is it so much better that it warrants the cost and delay?”
Today’s deadline, extended by the parties from Feb. 3, comes almost 16 months after all 50 states announced they were investigating bank foreclosure practices following disclosures that faulty documents were being used to seize homes.
Officials from a group of state attorneys general offices and federal agencies, including the Justice Department, have since negotiated terms of a proposed settlement with the five largest mortgage servicers -- Bank of America Corp. (BAC), JPMorgan Chase & Co. (JPM), Citigroup Inc. (C), Wells Fargo & Co. (WFC), and Ally Financial Inc.
The settlement would set requirements for how the banks conduct foreclosures, provide mortgage refinancings for underwater borrowers -- people who owe more on their mortgages than their homes are worth, fund loan principal reductions, and make payments to states and borrowers who lost their homes to foreclosure.
The accord, which must be approved by a federal judge, will allow banks to take steps toward resolving mortgage liability stemming from the housing bust. The releases protect them from legal claims tied to foreclosures, mortgage-servicing and origination of loans, said another person familiar with the deal.
The deal wouldn’t take away any individual’s right to pursue an individual or class action case, a third person said. All three declined to be identified because the talks are private.
The scope of the liability releases has been one of the biggest concerns for some attorneys general, including Harris and New York Attorney General Eric Schneiderman, who launched a separate probe of mortgage operations of banks.
Schneiderman said in an interview Jan. 27 that there were “outstanding issues” still to be resolved and declined to say whether he would sign the deal.
The liability releases wouldn’t prevent an investigation into mortgage securitization, he said. Schneiderman was named to a state-federal group that will probe the bundling of mortgage loans into securities in the run-up to the financial crisis. Shum Preston, a spokesman for Harris, and Danny Kanner, a spokesman for Schneiderman, declined to comment about whether their states were signing the national settlement.
Delaware Joined Push
Delaware Attorney General Beau Biden, who joined Schneiderman in pushing for a narrow release that doesn’t protect banks from claims that haven’t been fully investigated, won’t support the agreement as drafted because of the scope of the releases, his office said Feb. 3.
“We are continuing to review the complicated documents that we received a week ago, and are continuing to advocate for improvements to address our concerns,” Jason Miller, a Biden spokesman, said in a statement.
The settlement, meanwhile, would also require Massachusetts, Nevada and Arizona, which have sued banks involved in the talks, to settle those cases, one of the people said. Nevada and Arizona each sued Charlotte, North Carolina-based Bank of America over mortgage-servicing practices, accusing it of misleading consumers, while Massachusetts sued all five banks that are part of the proposed deal.
Brad Puffer, a spokesman for Massachusetts Attorney General Martha Coakley declined to comment about whether the state will sign. Jennifer Lopez, a spokeswoman for Nevada Attorney General Catherine Cortez Masto, said the state hadn’t made a decision on whether to sign the deal as of Feb. 3.
Amy Rezzonico, a spokeswoman for Arizona Attorney General Tom Horne, didn’t return a call seeking comment. Iowa Attorney General Tom Miller, who is helping to lead negotiations on behalf of the states, couldn’t be immediately reached for comment.
Another incentive for states to sign is a so-called most- favored nation provision. It requires banks give those who accept the deal the benefit of any better terms later given states that opt out, two of the people familiar with the term said.
At least three states have announced their intention to sign the settlement -- Connecticut, Oregon and Louisiana.
Oregon Attorney General John Kroger said in a statement last week that he decided to accept the deal, which will provide $30 million to his state and as much as $200 million in relief to Oregon homeowners, after considering the potential benefits that might come through litigation.
“I am not confident we could get a better agreement on this limited set of issues if we litigated for several more years,” Kroger said.