Of course, a settlement itself could costs the banks heavily, as officials are pushing for damages of $20 billion or more, as well as insisting on major and costly changes to the industry’s mortgage servicing practices.
It’s a calculation that the banks and state and federal officials each will have to weigh in the weeks ahead — whether to sign onto a deal that would offer a measure of certainty, or to take their chances on a prolonged series of individual legal battles.
“There’s just so many cooks [in the kitchen] that it makes it very difficult for the industry to know exactly what they’re going to get in turn for reaching an agreement,” one bank representative with knowledge of the talks said, explaining why the banks would want certain assurances before they agree to any deal. “It’s very unclear what any kind of an agreement would mean in terms of what’s off the table” in the future.
For their part, Miller and Tom Perrelli, associate U.S. attorney general, have tried to structure the pending settlement in a way that could appease as many sides as possible. For example, they have proposed creating two separate funds, one for the states and another for the federal government, that would consist of the penalties paid by the banks.
Any principal reductions, Miller said, would be financed out of the national fund to “give some comfort for people [on the state level] who have concerns about principal reductions.” Attorneys general also would have some flexibility in how to use their funds, such as putting the money toward foreclosure hotlines or mediation programs.
Still, the lingering differences have left the outcome uncertain nearly a year after the industry’s shoddy practices sparked national headlines.
“The goal really is to have all 50 states be part” of a settlement, Miller said. But even as that prospect appears unlikely, he said he remains hopeful. “We’re continuing to talk and work and negotiate. . . . If there’s a possibility of an impasse, we keep working and try and solve that.”
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