Obama officials, attorneys general closer to possible deal with banks in foreclosure mess
Friday, March 4, 2011; 6:51 AM
Senior Obama administration officials, newly joined by state attorneys general, were on the brink Thursday of finalizing major elements of a possible settlement with large U.S. banks accused of flawed and fraudulent foreclosure practices, sources familiar with the discussions said.
But absent from this otherwise united government front, which is preparing to submit a proposed settlement to financial firms within days, is the regulator of the nation's largest banks, the Office of the Comptroller of the Currency.
The OCC has raised concerns that the firms might be required to pay too large a fine - $20 billion or more - and adopt mortgage procedures that the agency doesn't think make financial sense.
The sources spoke on the condition of anonymity because the terms of the discussions weren't finalized.
This split within the federal government echoes previous disagreements among regulators over how to respond to the financial crisis. The OCC and other bank regulators have been accused of coddling the firms they are supposed to be overseeing while agencies that have advocated a get-tough approach have been criticized for trying to gum up the financial machinery that makes the U.S. economy hum.
The nation's foreclosure crisis remains one of the drags on the U.S. economic recovery, and Obama administration officials are under pressure to help homeowners facing foreclosure.
Even as officials neared consensus over the changes they would require banks to make in foreclosure practices, there was still no decision about how large a penalty banks should face and whether they should pay a fine or devote the sum to helping rework mortgages for distressed borrowers. Officials have told banks they would like the industry to help avert 1.5 million new foreclosures, sources said.
On Thursday, senior officials from the Department of the Treasury and the Department of Housing and Urban Development discussed finalization of these terms. These discussions occurred as the Justice Department,, which has been coordinating the efforts, prepared to approach banks with a potential settlement.
One person close to the discussions said that a final round of face-to-face negotiations with banks would be held in the coming days, probably in Washington.
If the settlements are finalized, they could resolve a range of allegations that go beyond the flawed foreclosure practices, which came to light in the fall. The alleged infractions include that the banks failed to comply with federal rules requiring mortgage modifications, broke state laws when foreclosing on borrowers and lied to federal housing programs.
Last fall, the nation's largest banks were forced to freeze tens of thousands of foreclosures after widespread reports of problems with documents. After months of investigation by federal and state officials, the Justice Department has been holding discussions with representatives of banks in Washington about a potential settlement, sources said.
In recent days, federal officials have coalesced around proposed changes in bank practices aimed at safeguarding the mortgage modification and foreclosures processes, sources said.