Log in yet another victory for the banks, as the attorneys general investigation appears to be winding down before too much additional energy and resources are expended. Banks hold more in their petty cash cigar box than the attorneys general have in their collective budgets.
It is really hard work to take on an investigation of this magnitude. The attoneys general received significant media time so they are assured re-election/reappointment, so lets come up with a half baked "compensation" fund and send the bankers to bed without dinner, (one time) and the attorneys general will spew how they have our back (just in time for the holidays). By February, bankers and regulators will be exchanging Valentine's Day cards.
Sources on both sides of the 50-state attorney's general investigation into so-called "robo-signing" foreclosure practices tell me they are nearing a settlement. As Bank of America, JP Morgan Chase and Iowa Attorney General Tom Miller square off today before the Senate Banking Committee, the framework of a deal is taking shape.
While sources say there is no universal solution to shoddy foreclosure practices at some of the nation's largest mortgage banks/servicers, the three largest, BofA, JPM and Wells Fargo, may be agreeing to the same solution.
First, banks would pay into a fund used to compensate borrowers who have claims after their home has been sold in foreclosure. The borrowers would have to prove they were wronged in the process, and the attorney's general would allocate the funds. In other words, the AGs would be the administrators. The amount of said fund is still undetermined, and likely still in negotiation. Each bank could settle on its own amount, or there could be a joint agreement.
Secondly, the banks would do away with the dual track of modifications and foreclosures. That means that only after all options of modification are exhausted can a bank begin foreclosure proceedings. Many borrowers currently complain that they are in the midst of the modification process when they get a notice of foreclosure sale. The drawback to eliminating the dual track is even greater extended timelines to foreclosure for borrowers. As it is, borrowers on average can be in their homes for a year and a half without making mortgage payments before eviction.
Finally, there would be some kind of agreement to third party mediation for review of all the cases in the first part of the agreement where borrowers are seeking compensation from the AG fund.
There has also been talk of principal write down as part of settlements, perhaps with some banks and not others. "It's been on the table," says one source.
In written testimony today, JP Morgan Chase's David Lowman admits, "Our process was not what it should have been; quite simply, it did not live up to our standards."
He outlines the bank's new quality controls, new employee training, and the creation of model affidavits that will comply with all local law requirements and be used in every case.
He also, however, claims, "the underlying information about default and indebtedness was materially accurate," and any paperwork issues "did not result in unwarranted foreclosures."
Iowa Attorney General Tom Miller said in an interview that I posted last week that the banks, as part of an agreement, "maybe instead of paying huge fines, they adequately fund the modification process." Miller doesn't suggest that in his written testimony before the Senate Banking Committee today, but he does focus quite a lot of the testimony on "missed opportunities" to improve mortgage modifications.