Fed regulators vs. 50 state AGs bank settlement

Written by Biloxi

A few weeks ago, the 50 state Attorneys General met with the big banks on the mortgage fraud settlement. The 50 state Attorneys General wrote a 27 page settlement that outlined changes in bank abuses and practices such as robo-signing that affect the struggling homeowners and as well as homeowners that were wrongfully foreclosed on. Well, the state Attorneys General's first meeting with the banks didn't exactly go smoothly. The two sides met and one idea that had been thrown around by the attorneys general for a resolution was to get banks to agree to principal reductions, reducing the amount that homeowners owe, on home loans. Banks balked on principal reductions for homeowners. JP Morgan Chase CEO Jamie Dimon told reporters at the U.S. Chamber of Commerce, “Principal writedown for people who couldn’t pay their mortgages? Yeah, that’s off the table.”

The state Attorneys General have a long way to go for a final settlement with the banks. Even Iowa Attorney General Tom Miller who is leading the 50 state Attorneys General investigation admitted that this settlement will be long process. Mr. Miller is facing some resistance of the settlement by some of the other Attorneys General. The Attorneys General of Oklahoma, Virginia, Nebraska, Alabama, Texas, Florida and South Carolina opposed a proposal to reduce principal balances. However, New York Attorney General wants to bow out in a settlement with the banks and pursue possible criminal charges against the banks. As the NY Times reported, NY Attorney General Eric Schneiderman "will not participate in a deal that would preclude his office from pursuing claims against the banks relating to their mortgage origination, securitizations and marketing practices." Mr. Schneiderman doesn't believe the settlement doesn't do enough to respond to and remedythe housing crisis situation which the big banks created. Now, Mr. Miller's settlement has competition. The banks presented their own proposed deal to the state Attorneys General.

The banks' draft addresses the problem, by requiring mortgage servicers to tell borrowers every month the “total amount due, allocation of payments, unpaid principal, listing of fees and charges, current escrow balances, and the reason for any payment changes”. Yet, the banks leave themselves a loophole. The banks don't address homes that are part of the MERS mess. And I notice that the banks don't address the loss of chain of title or change of ownership and contact information for borrower to contact investor to his/her loan for mortgage negotiation.

In addition to the banks, the Office of Comptroller of Currency breaks with the 50 state Attorneys General to settle with banks over foreclosure practices. As of this week, 14 mortgage Servicers has made an agreement to fix foreclosure practices, and this doesn't include fines. From Bloomberg:

The consent decrees, which could be signed by as many as 14 servicers including Bank of America Corp. (BAC) and Wells Fargo & Co. (WFC), require companies to strengthen their systems for handling foreclosure documents and communicating with borrowers who are behind on their payments, said two people briefed on the matter, who spoke on condition of anonymity because the agreements aren’t public. The deals also require firms to improve auditing and risk-management practices, the people said.

One of the people said the agreements also would assign responsibility to boards of directors to supervise loan servicing more closely.

The agreements don’t include fines, the people said. Banking regulators issuing the consent decrees -- the Federal Reserve, the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the Federal Deposit Insurance Corp. -- are moving forward with procedural remedies while continuing negotiations over possible monetary penalties, they said.


Moreover, the FDIC chair has called for a cleanup Superfund to cleanse the country of toxic mortgages. FDIC chair Sheila Bair spoke on 60 Minutes last week:

Banks so poorly handled documentation on millions of mortgages that many today cannot prove that they own the homes they want to foreclose on. The resulting rash of lawsuits from people seeking to save their homes has one of the government’s top banking regulators worried that the torrent of litigation will delay the real estate market’s recovery.

Federal Deposit Insurance Corporation Chair Sheila Bair tells Scott Pelley banks should be forced to contribute billions to a clean-up fund that will help stressed homeowners stay in their homes and stave off lawsuits – there are 30,000 already – that threaten the economic rebound [...]

Like last year, banks are expected to foreclose on a million mortgages this year, a scenario that could generate more lawsuits over mismanaged paperwork. “I think that this litigation could easily get out of control,” says Bair. “…We’re already feeling like we’re falling behind it,” She thinks a large clean-up pool funded by the banks that would pay homeowners to accept a bank’s ownership claim without a lawsuit is necessary. “I would assume it would be billions [that the fund would need],” Bair tells Pelley.

In other words, the Superfund is a separate settlement from the settlements of the state Attorneys General and federal regulators. The more banks resist these settlements, the more bombshell of illegal practices and abuses and more liable they will become. Last week on 60 Minutes, Lynn Szymoniak, a Florida attorney and fraud investigator with a specialty in forged documents, explained to interviewer Scott Pelley on how she was a victim of robo-signing and bogus assignment of mortgage of her home. A few days after the 60 minutes segment, American Home Mortgage Servicing, Inc. wrote a rebuttal letter to the 60 Minutes on forged documents used in foreclosures. From Lynn Szymoniak's blog site, Fraud Digest:

Giant mortgage servicer American Home Mortgage Servicing, Inc. (AHMSI) wrote a rebuttal to the 60 Minutes segment on forged documents used in foreclosures. The mortgage documents at issue, the forged documents, were prepared by Docx, LLC, a subsidiary of Lender Processing Services. The newest position is that the "real" assignments never made it out of the vault.

And another case highlight this week is a blow to the banks' fight on settlements. An Alabama judge dismissed a foreclosure because the bank failed to comply with the pooling and servicing agreement for transferring mortgages to the trust. Keep in mind that a Pooling & Servicing Agreement ("PSA") is a legal document that spells out the responsibilities and rights of the parties. This key legal document will hurt the banks especially since the banks packaged and repackaged mortgage back securities.

It will be a long and slow road to accountability against the banks. And look for the banks to dole out for some cases while dragging out other cases. The banks have alot of legal muscle in some cases, but it is really up to the judges to step up to the plate and say enough is enough. No one is above the law and neither are the banks. It only takes enough judges to stand up to the banks who are making a total mockery to the justice system and who think they can escape the judicial system.