Law Suits & Courts

Q&A with AG Tom Miller

Posted on Friday, March 18, 2011

By Brady Dennis
Washington Post Staff Writer
Iowa Attorney General Tom Miller, who is heading a 50-state investigation into flawed and fraudulent foreclosure practices by big banks and lenders, is scheduled to testify about the issue Tuesday afternoon before the Senate Banking Committee. He also is meeting with officials from the Treasury Department and the White House while in town.

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Miller, who recently won reelection to an eighth term, sat down Tuesday morning to discuss the foreclosure investigation with Washington Post reporters. A partial transcript follows:


Q: I'm wondering if you can take us through where everything stands [with the 50-state investigation]?

Miller: [Assistant Attorney General] Patrick [Madigan] and his colleagues have had a chance to have a conference call with all the major servicers and sort of hear their side of the story and start the dialogue on these issues. And, in addition, we've met with Bank of America twice in Des Moines. Those discussions have been, I think, productive. There's still a long ways to go, and still a lot of things to find out and a lot of discussions to have. But as I've said just about every time I've talked about this, the goal once we got in this mess is how can we come out of this mess better off than when we started? We see that as ensuring the "robo-signing" never happens again, providing redress for consumers that were damaged, and then taking a broader look at what's happening in [mortgage] servicing. When you take that broader look, you start to get into loan modification issues and the general competency of the servicing work that's done.

If you can keep a homeowner in the home, and they can make a payment over the long term, [and] if that payment is greater than what would be realized by foreclosure, then the homeowner is better off, the investor is better off, the community is better off and the broader community is better off. ... The servicing companies aren't putting enough resources into servicing in general, and modifications in particular. They've got more than when this started three or three and a half years ago, but still not enough. ... That's just not acceptable. They've got to put the resources in to make sure that the work is done.

Q: So what is Bank of America telling you when they come to Des Moines? The banks have generally said, "We don't see this as a large problem that can't be fixed." What are you hearing from them?

Miller: We've had a very good discussion with them. I really can't say what happens in negotiations. I have to be a little bit careful about that. But to date, we've been engaged with them. We've had two good discussions, and we'll have a number more.

Q: How different are the conversations you're having today [with the banks] different than the ones you've had over the years? Because this is not a new problem for the state AGs, right?

Miller: That's right. That was three years ago, when we had those first discussions. We had the 20 largest servicers for subprime in and met with them. They've certainly come a ways since then. They've added people; they've added resources. But they're not where they should be. They've come a ways, but they've got a ways to go, and that's what this is all about.

I think that one thing we've learned in Iowa is that this whole foreclosure avoidance and modification process is a lot more difficult than anybody realizes. We have a hotline in Iowa that I think people think is probably the best in the country. It's one place to call if you're having trouble with your mortgage, if you're facing foreclosure. ... We think it's working pretty well now, quite well.

But it surprised us how much effort, how much time, how difficult it was to get that whole thing working. So we're dealing with some issues that are very, very difficult, but not insurmountable. And it's been three years now, and now's really the time to get this right. And that's sort of our thinking. It's time to get the whole system right.


Q: Why is it that the banks are not finding the incentive to put the resources in, to get this done, and to maximize their yield through the modifications rather than going through foreclosures?

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Miller: That raises sort of a fundamental question, and that is, is the system fundamentally flawed, that it's not going to work the way I just described? ... It was a system set up where [mortgage servicers] essentially would be collectors. People would send their mortgage payment in. They would send it on to the investors. It was never envisioned, this kind of crisis.

So part of the problem is how they're compensated. ... They're compensated basically on the volume of loans they service, and that made sense when it was mainly just a collecting business. It makes less sense today. In part, are they compensated enough to fully resource up? Are they compensated too much on fees, so that the fees are added and emphasized, which are counterproductive to the modification process?

The other fundamental problem is the same banks own a lot of the second mortgages, the second liens. When they're acting as a servicer, there's an interest in modifying the loan for the investor, so that the person can pay and the investor can get more than in foreclosure. But there's a strong incentive then to wipe out the second lien. Well, they own the second lien, so how does that all work out?

Q: Is the purpose of the [foreclosure] task force to play the role of de facto regulator and come up with a solution to fix the problem? Or is it to create an investigative record and do civil and/or criminal prosecutions?

Miller: It's both. Clearly, it's investigative, and we want to find out and see what laws were broken and what we should do. But then we switch to what the remedy is. We want to be more creative and figure out a way to make the system better. For instance, rather than having them pay a huge amount of fines, much of that money [instead could] go to adequate resources to make this work.

Q: Are you issuing any subpoenas to banks?

Miller: We haven't at this point. We've gotten some compliance. And we're still sort of early. They are cooperating with us.

Q: In the end, is your goal some sort of global settlement, like with tobacco, where you have all the banks agreeing to engage in a series of steps to remedy this?

Miller: What we're trying to do is have individual agreements with the major servicers that are roughly equivalent, which is just a little different than [with] tobacco. It was one agreement.

Q: Are you looking for them to agree to principal reductions in the end, to solve this, instead of paying a big penalty. Is that the goal?

Miller: Well, I don't think there's a direct trade-off there. We want the modification process to work. And we think whenever there is a loan that means the criteria ... the person can make the payment, has ability to make the payment over the long term and the payment is more than the foreclosure [proceeds], we think that should happen. And in some instances, that involves principal reductions.

Q: Have banks been willing enough to reduce principal?

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Miller: I think they've been too reluctant to do that. But they're edging their way into it. They are doing it more than they did before, but not enough. ... There is a cultural issue that I think the banks/servicing companies have dealt with over time. And that is that for a financial institution, and particularly one that's main job is collecting the mortgage payment, to give a reduction in the loan - that's sort of against the culture. There's a cultural step there. But again, they're doing better on that.


Q: What kind of cooperation are you getting from federal regulators in your investigation? I know in the past - and we've written recently - about how, for example, the [Office of the Comptroller of the Currency] wasn't totally cooperative with the anti-foreclosure task force. So I'm interested in the cooperation you're getting, if any, from federal regulators?

Miller: We're getting terrific cooperation, like we have never before. And that's generally true with the Obama administration. The relationship that we have with Justice is something like never before. We work on a lot of things together, particularly financial fraud. The relationship is based on trust and equality and rolling up your sleeves and getting the job done. There's no I'm-a-fed-and-you're-not attitude. It's truly a remarkable relationship.

And, if anything, the relationship we have with Treasury is even more remarkable, because we never had a relationship with Treasury before. ... We see things in similar ways. We see each other as equals. It's sort of an untold story here. ... We're all trying to figure this out and work together.

Q: Can we go back to the very basic issue of the "robo-signing"? ... Are you satisfied with [the banks'] reviews? It seems like they were done pretty quickly. Who are they hiring to do these reviews? How are they reviewing all of these huge loads of documents? Where are they doing it?

Miller: I never was a great fan of President Reagan, but I like to quote him and say, "Trust, but verify." We're trying to work through that and do our own work and make sure that what they're saying is right. ... When we're done, we'll talk in some detail [about our findings]. But I really am reluctant to talk about the investigation part as it's ongoing.

Q: All these problems that have come up in the past three months, are these issues that fundamentally wouldn't change the foreclosure dynamic of the country? Would [more] people be in their homes, if there had been no "robo-signing"? Would it actually have an impact on who would be in their home and who wouldn't be in their home?

Miller: First of all, we think they are important issues because of the integrity of the court system, that these are affidavits that are sworn to that aren't true, that are the basis for a foreclosure. To some extent, some people try to dismiss it as mere technical problems, and we just don't agree with that at all.

In terms of whether it would have made any differences of people being foreclosed upon or not, that's one thing we're trying to find out. And if there are people in that situation, trying to figure out what remedy they should have.

Q: In Arizona, [Attorney General] Terry Goddard has proposed a consumer bill of rights, a borrower's bill of rights. Are you looking at that at all as a model for some sort of settlement [with banks]? For instance, if you're in loan modification negotiations, they shouldn't be foreclosing on you at the same time.

Miller: That "dual track" is coming up as an issue more and more in our discussions, and we're trying to deal with that â?¦ So, yeah, we probably will look at that.

Q: What's the message that you're taking up to the Hill today?

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Miller: Basically, [to] recognize the problems and what I was saying this morning, that we should use this as an opportunity to make the system better, and that there's a lot of things we need to do, particularly in the servicing model. There are more difficulties than we realized.

Q: Isn't there a dual pressure on you. If you try to put a pause to everything [in the foreclosure process], you gum up the system and freeze things. You don't want to be too easy, but you don't want to freeze everything, right?


Miller: Right. And that's the balance. We're very sensitive to the overriding issues concerning the housing market. We don't want to harm the housing market. We're not going to leave it better if we harm it significantly. We understand that.

Q: Will your remedy include a way for people who've been foreclosed on wrongly ... to retroactively fight their foreclosures?

Miller: We're discussing that and maybe devising some way that they can get monetary recovery if that happened.

Q: The banks have been trying to tell this story in Washington that [the foreclosure mess] is a technical, paperwork issue. ... When you talk with them, to what extent are they giving you that same line?

Miller: Obviously, they are going to make their argument. And that's an argument that they make. Bank of America is the only one we're really engaged with, and it's a meaningful discussion. It's beyond that. We're talking about a lot of different issues and solutions.

Q: You've targeted Bank of America because of their volume of mortgages, or the other ones just aren't being as cooperative?

Miller: Actually, they were the one that stepped forward and called us and wanted to meet with us first, a few weeks ago.

Q: Why do you think they're doing that?

Miller: I think they want some resolution. They have an interest in resolution, to try to put this behind them. They're not in a good spot right now.






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