On the eve of planned settlement negotiations between state and federal authorities and the nation’s largest mortgage servicers, the companies have submitted detailed changes they are willing to make to alter past practices and aid troubled homeowners in the months ahead, people familiar with the matter said.
The five banks at the center of the settlement negotiations over shoddy foreclosure practices — Ally Financial, Bank of America, Citibank, J.P. Morgan Chase and Wells Fargo — submitted the proposal to government officials ahead of the first planned face-to-face meetings between the groups Wednesday in Washington.
Sources familiar with the 15-page proposal said the banks have offered to make significant changes such as ending the “dual track" process that has caused homeowners to receive foreclosure notices even as they are negotiating modifications, and giving borrowers a single point of contact when they are seeking to modify their loans. They also plan to implement a series of new servicing standards such as verifying that affidavits submitted in foreclosure cases are accurate and complete, which banks failed to do in the recent “robo-signing” scandal.
At the same time, the banks’ proposal doesn’t offer the extent of concessions requested in a 27-page “term sheet” submitted earlier this month by a core group of state attorneys general and backed by a handful of federal agencies, including the Justice Department and the new Consumer Financial Protection Bureau.
That document included calls for servicers to undertake more principal reductions for certain types of borrowers, allow borrowers to submit and track documents electronically in real time and allow homeowners in trial modification programs to automatically convert to permanent modifications if they have made three payments on time, among other changes. Government officials also have considered imposing tens of billions of dollars in penalties on the banks for the shoddy foreclosure practices, requiring that part of those funds be used to reduce loan balances for troubled borrowers.
Iowa Attorney General Tom Miller, who is leading the multistate effort and will head up Wednesday’s meeting at Justice along with U.S. Associate Attorney General Thomas Perrelli, said in an recent interview that state officials would not settle for anything less than wholesale changes.
At the same time, bank officials have pushed back against some proposed changes. They clearly don’t like the idea of heavy fines and have questioned the fairness and the massive cost of being forced to write down a significant number of loans. In addition, they point out that stakeholders on every side of the issue have struggled to design a workable and equitable loan-modification program.
Both sides say they see Wednesday’s meeting as the beginning of negotiations that could last weeks or months. And whatever the outcome, it’s unlikely the banks, federal regulators and state officials will wind up on the same page. There has been much disagreement within each group. In addition, some federal regulators such as the Office of the Comptroller do not plan on attending the meeting and have pursued their own settlement with the banks.
The settlement negotiations come as the House voted 252 to 170 Tuesday evening to kill the Obama administration’s key foreclosure-mitigation program, which has been dogged by criticism that it has helped far fewer homeowners than expected.
A group of 50 House Democrats this week wrote to Treasury Secretary Timothy F. Geithner, urging him to revamp the controversial program and saying that “HAMP must change to meet its potential.”
Administration officials have recently defended HAMP (the Home Affordable Mortgage Program) as an important part of the effort to help homeowners and arguing that despite its disappointments it has spurred the industry to ramp up modifications.
Tuesday’s vote was largely symbolic. The legislation is not likely to pass the Senate, and the White House has threatened to veto any bill to eliminate the program.