Last fall, Iowa Attorney General Tom Miller and a handful of counterparts from other states began pursuing a settlement aimed specifically at overhauling the mortgage servicing industry, which has been plagued with problems.
That endeavor alone has proven complex and time-consuming. So many parties are involved that 50 people or more have regularly crowded into negotiating sessions held in hotel conference rooms in and around Washington. Some rounds have lasted more than eight hours. The state and federal officials, as well as the bank lawyers and executives who have crammed into the sessions, have a running joke that the negotiations resemble the Paris peace talks on Vietnam.
Despite the intricate issues and numerous parties, officials say they are on the brink of securing a settlement that would revamp the way banks service millions of mortgages, lead to more loan modifications for troubled homeowners and extract roughly $20 billion in penalties that quickly could go toward foreclosure prevention efforts.
But New York Attorney General Eric Schneiderman has been arguing in favor of investigating an even wider range of mortgage-related practices, leading to “comprehensive resolution” that places homeowners and large investors in mortgage securities at the same table.
He has suggested that officials involved in the 50-state talks have been too hasty in seeking a settlement and are at risk of releasing banks from future claims that go beyond the issues probed so far.
Miller, who has been leading the multi-state effort, last week removed Schneiderman from the coalition’s executive committee, saying he had “actively worked to undermine” the efforts to reach a settlement. Some lawmakers and activists have rallied behind Schneiderman, calling his opposition to the yet-unfinished deal heroic.
Those involved in the settlement talks are increasingly frustrated at how their efforts have been perceived.
“We’ve been accused of being in bed with the banks. To say that to a group of people who have spent the last seven to 10 years fighting mortgage abuses day in and day out is an insult of the highest order,” said Iowa Assistant Attorney General Patrick Madigan, a longtime Miller deputy, who has worked on major settlements with subprime lenders such as Countrywide and Ameriquest. “It’s just unreal.”
Another person close to the talks, who like several others spoke on the condition of anonymity to discuss the situation more freely, said many in the group are “just exasperated. . . . This smear campaign of lies and innuendo, it’s uncalled for, it’s unprecedented, and it threatens substantial consumer harm.”