Posted on Sunday, March 20, 2011
A plan to force the nation’s biggest mortgage firms into helping millions of homeowners avoid foreclosure was supposed to take two months to hammer out. The timeline, it turns out, was overly optimistic.
The effort, endorsed by the Obama administration and an assortment of state regulators, is facing modest delays in the face of opposition from banks and Congressional Republicans.
“There haven’t been any formal negotiations at this point,” said Iowa’s attorney general, Tom Miller, who is leading an investigation by federal and state regulators into banks and other mortgage servicers that foreclosed on homes without the proper legal documentation.
A consortium of regulators sent the nation’s top five mortgage servicers this month a 27-page list of demands, including prohibitions on certain foreclosures and mandatory cuts to some mortgage balances. Authorities are also pursuing industry fines – from $20 billion to $30 billion.
Mr. Miller said that negotiations between banks and regulators would commence “sometime in the near future,” backing off an earlier plan to complete talks in the next two months.
“That may be ambitious,” Mr. Miller said in an interview. “We’ll just have to see how it unfolds.” He added that regulators have had phone conversations in recent days with each of the major mortgage firms.
Treasury Secretary Timothy F. Geithner told a Congressional committee this week that “it is very important that we try to bring this to bed as quickly as we can.”
But Mr. Miller made no promises that a deal will ultimately be struck. “No one knows if there’s going to be an agreement,” he said.
Ms. Miller’s statements come as his proposal faces wide-ranging attacks from the financial industry and some lawmakers. Even two state attorneys general, from Virginia and Oklahoma, have objected to the plan, saying it goes too far.
“We’re not going to agree on everything, that’s a reality,” Mr. Miller said of his fellow state regulators.
Banks, too, have begun a public relations assault on the proposal. But Mr. Miller is not backing down, saying regulators pursued the proposal after more than three years of investigating. He also believes “public opinion is on our side.”
The mortgage industry’s “huge pushback is not helpful, but it’s human nature,” Mr. Miller said. “We’re not terribly focused on it.”
Firms like Wells Fargo and Bank of America have focused much of their scorn on a move to force banks into reducing balances on some mortgages. Mr. Miller noted that the principal balance reduction plan was only one feature of a sweeping proposal to “make a dysfunctional system functional.”
The backlash has spread to Capitol Hill, where some Republican lawmakers have objected to the possible fines facing the firms. Senator Richard Shelby, Republican of Alabama, who is the ranking member of the Senate Banking Committee, blasted the proposal as a “regulatory shakedown.”
The objection from lawmakers initially surprised Mr. Miller, but he said he had moved on.
“The more I thought about it, it was really quite predictable,” he said. “It’s how Washington operates. We’re not going to play Washington games.”
When asked about the possible size of the fines, Mr. Miller declined to comment.
Republicans also have objected to the new consumer protection agency’s involvement in the process. They complained that the Consumer Financial Protection Bureau, which does not formally open until July 21, was overstepping its authority.
Mr. Miller acknowledged that Elizabeth Warren, the Obama administration official setting up the consumer agency, has been a “very active participant” in the process. Her involvement, Mr. Miller said, was “appropriate” given the consumer bureau’s “expertise” in mortgage servicing. “It would be strange to say, ‘We’re going to quarantine you.’”
Despite all the criticism, Mr. Miller is not relenting.
“I don’t think anything fundamentally has changed,” he said. “The debate swings back and forth. That’s part of American life.”
By BEN PROTESS, DEAL BOOK