Sunday, March 13, 2011

50 State Attorney General 27 Page “Settlement” on Foreclosures

State Attorney Generals in all fifty states are eyeing big changes and settlement with the largest mortgage industries---Bank of America Corp., Wells Fargo & Co., JPMorgan Chase & Co.,Ally Financial Inc., and Citigroup Inc The proposed 27 page checklist of changes which was the result of federal and state probes and banks halting foreclosures in 50 states into big banks' foreclosure practices. The Departments of Justice, Treasury, Housing and Urban Development, Federal Trade Commission, and Consumer Financial Protection Bureau support the proposal. Here is the state Attorney Generals' proposal in a nutshell:

Under the proposal, which would not need Congress' approval, lenders could be required to write down the value of their loans to borrowers who owe more than their homes are now worth. They reportedly would be forbidden from starting foreclosure proceedings while a homeowner is trying to modify their mortgage terms, and there would be an independent review if they denied a mortgage modification.
The letter complains that the draft settlement would revive the Home Affordable Modification Program, the Obama administration's leading effort at preventing foreclosures, which the House GOP wants to abolish.

This proposal basically outlines what the bank servicers legally were supposed to do: Accurately apply payments. Respond to inquiries. Operate in good faith, use a NPV [Net Present Value] test for HAMP ( this was in the HAMP program originally.) and document the assignment chain before foreclosing. In the proposal, banks are prohibited to use dual-tracking system (that is, foreclosure while attempting modification.). However, the state Attorney General didn't address homes under MERS in length in the proposal. State Attorney Generals said that MERS will be addressed separately.

So far this proposal has gotten mixed reviews. Much of the public doesn't like the proposal and would like to seek the bank executives face criminal charges.  The House Republican criticizes the proposal and says that proposal will hurt the banks. And the bank CEOs from Wells Fargo, JPMorgan Chase, and Bank of America reject the proposal and are against principle write-down. So who wins from this proposal? Is it the banks or the homeowners? Well, from reading the 27 page proposal, homeowners and investors better protected. If this proposal goes into effect, bank servicers will have to provide the name and information of the investor that owns the homeowners' home. This will bring the homeowner and investor to work closer together and find some common ground to minimize foreclosures and investors can see less lost of their investment, while the middle men [bank servicers] would see their power diminished.

Of course, the proposal did not specify the amount of any fines, restitution or mortgage forgiveness to be made as part of a settlement or how it would be paid to affected homeowner. And the final settlement could take up to two months. We shall see what the outcome will be.

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