Posted on Friday, March 18, 2011
WASHINGTON — A broad agreement could be struck within two months to overhaul how millions of foreclosures are handled by the nation’s biggest banks and to expand the use of home loan modifications, according to Tom Miller, the attorney general of Iowa.
All 50 state attorneys general, along with federal regulators, have been stepping up pressure on the mortgage servicers over their foreclosure lapses in recent days and presented them with an outline of a settlement late last week. But when Mr. Miller made his comments at a press conference here on Monday, it was the first time officials have said when an agreement might come.
“I’m hoping we can wrap it up in a couple of months,” he said. “That’s a hope, but we’re going to move as fast as we can.”
There have been reports that a broad settlement with the banks was imminent, but Mr. Miller played down that prospect, citing thorny issues like the question of just which homeowners should benefit from the proceeds of any settlement.
The attorneys general and federal government agencies are pressing for a financial settlement that could total over $20 billion. When asked about these estimates, Mr. Miller and three other attorneys general declined to comment on Monday.
While the attorneys general and the newly created Consumer Financial Protection Bureau support such a fund for homeowner relief, there has been growing criticism of the government’s existing program to modify mortgages, known as the Home Affordable Modification Program. Last week, Republicans in the House pushed to kill the program, which has helped far fewer homeowners than promised.
A fund with at least $20 billion would represent a sharp expansion of modification efforts for the more than four million Americans facing the loss of their homes.
Many more Americans have mortgage loans that exceed the value of their homes because of falling housing prices, and critics warn that if an aid program is too generous, it could encourage borrowers to walk away from their homes.
Mr. Miller said the attorneys general were “very concerned of people taking advantage” of any program intended to help people facing the loss of their homes.
What is more, determining exactly who to help will be a “hot point” as various government regulators and the attorneys general try to reach a settlement with the banks, according to Roy Cooper, the attorney general for North Carolina.
“We don’t want to stop foreclosures on homes that should be foreclosed,” Mr. Cooper added, a tacit acknowledgement that too broad a modification effort could cause the housing market to grind to a halt, and delay any broad recovery in home prices for several years.
Major servicers, including Bank of America, Citigroup, Wells Fargo and JPMorgan Chase, all declined to comment last week. However, in recent financial filings with the Securities and Exchange Commission, several big banks warned that the continuing regulatory investigations could have a significant effect on their results.
As expensive as a settlement could be for the big banks, industry lobbyists in Washington privately say that they are eager to put the issue behind them, especially given the public relations fallout from a protracted fight with the government.
And though the banks have said that the number of actual victims of foreclosure abuses is small, it is likely that any settlement will force them to acknowledge broader problems with their procedures.
“The servicers themselves acknowledge there have been very serious problems in foreclosure servicing,” said John Suthers, the attorney general of Colorado. “They know there are problems.”
Since last fall, the nation’s biggest mortgage servicers have been under investigation by all 50 state attorneys general, after a nationwide furor was set off by revelations that documents in many foreclosure cases were signed with only a cursory review, a practice known as robo-signing.
Settlement talks are running on two tracks. The attorneys generals, backed up by a host of federal agencies, last week presented the five biggest mortgage servicers with a 27-page draft settlement proposal that could profoundly change how homeowners in default are treated.
The attorneys general, the federal consumer bureau and the Federal Deposit Insurance Corporation are also pushing for a large monetary settlement from the servicers. Much of that money would be used to modify the loan terms for borrowers who are delinquent or facing foreclosure, perhaps reducing the interest rate or the principal to lower monthly payments.
But regulators disagree over how big that settlement should be. The Office of the Comptroller of the Currency and the Federal Reserve do not favor as large a penalty as the attorneys general and the consumer bureau do.
In addition, Mr. Miller admitted that it was not always clear who had final say in the negotiations. “Nobody’s driving the bus,” he said. “Nobody really has the lead or is in control of this. It’s a real joint effort.”
Under the blueprint presented last week, banks would be prohibited from starting foreclosure proceedings while a borrower was actively trying to lower the interest rate or ease other terms of the home loan.
Any borrower who successfully made three payments in a trial loan modification would be given a permanent modification. When a modification was denied, it would be automatically reviewed by an ombudsman or independent review panel. In addition, banks would have to reward their employees for pursuing modifications over foreclosures, while late fees would be curtailed.
By NELSON D. SCHWARTZ, THE NEW YORK TIMES