Florida’s Pam Bondi, for instance, has joined a handful of other Republican attorneys general in arguing against forcing banks to lower loan balances for troubled homeowners, a controversial practice known as principal reduction.
New York’s Democratic attorney general, Eric Schneiderman, meanwhile, has joined other states in pushing for stiff penalties for the firms involved, which include Bank of America and Wells Fargo. He also has insisted that any settlement should not let banks off the hook from the threat of future lawsuits.
The disparate views from some of the country’s largest, most influential and most foreclosure-plagued states means that Iowa Attorney General Tom Miller, a Democrat leading the negotiations alongside federal officials, must walk a delicate line if he hopes to arrive at a settlement that his peers can support, that banks cans live with and that struggling homeowners (and voters) view as meaningful.
“I’m still confident. I think there’s a settlement there that everybody can agree to,” Miller said in an interview Tuesday, though he added: “There are still some major obstacles between here and there. Something like this can always get off track, but I still think we can come to a resolution.”
Nine months after widespread problems with foreclosures caused a national uproar, that hasn’t proved easy or fast.
A handful of crucial states, including California, Illinois and New York, have undertaken their own investigations into mortgage industry practices, subpoenaing information about business practices and seeking meetings with executives about such things as securitization to faulty court affidavits. Other officials, such as in Oklahoma, have threatened to pursue their own settlements with mortgage servicers.
Miller knows — and numerous banking industry officials agree — that failing to get the biggest and most influential states on board could undermine the legitimacy of any settlement, particularly because those are the states with the resources to undertake their own inquiries and where the banks could suffer the largest liabilities.
“The big states and the states that are heavily impacted are more important than some of the rest of us. We aren’t all equal in that regard,” Miller acknowledged, adding that “the banks want most or all of the large states included,” because if they don’t sign on to an agreement, the legal “battle would continue and be a significant battle.”
In fact, state and federal officials at a recent negotiating session in Washington tried to impress upon bank representatives just how uncertain the future could be if they refuse to settle, noting that the firms faced potential liabilities of at least $17 billion, based on the misconduct uncovered by investigators so far.