State attorneys general tackle mortgage servicing
State attorneys general, who soon will enter settlement talks with the nation's largest mortgage servicers after revelations of flawed foreclosure paperwork and other shoddy practices, will accept nothing less than wholesale changes to the way those companies treat troubled homeowners, the group's leader said Wednesday.
"We're trying to shift the servicing industry from [being] a dysfunctional one to a functional one," Iowa Attorney General Tom Miller, who's heading up the 50-state coalition, said in an interview. "If we can get something that changes the direction of servicing, then that's what we'll do. If we don't, then we're not going to settle."
Miller said he thinks it's "more likely than not" that the attorneys general and officials from nearly a dozen federal agencies will reach an agreement with banks.
"It's really in everybody's interest to settle this," he said. But he acknowledged that given the contentious issues and numerous parties involved, "Things could blow up and get off track; that's always possible."
Miller praised the "cohesion and collegiality" of his state and federal counterparts, but acknowledged that a consensus so far remains elusive, as evidenced by several attorneys general who have voiced opposition to a 27-page "term sheet" submitted to banks earlier this month.
"There's a great deal of diversity of opinion and personality; we all recognize that," he said, adding that he hoped that a final settlement would find wide acceptance.
The proposal - presented to Bank of America and Wells Fargo, among others - attempts to address the most common complaints about the mortgage servicing process, such as lost paperwork, long delays, misinformation and lack of feedback from the servicers.
It spells out the timeline that servicers must adhere to when borrowers apply for a modification and the conditions under which servicers should consider reducing a borrower's loan principal. It also requires servicers to provide a single point of contact for borrowers looking to rework their loans and develop a portal those borrowers can use to submit and track their documents electronically in real time. Servicers would not be allowed to move forward with a foreclosure if they are already negotiating a loan modification on that property.
The plan has come under attack by some Republicans, who say it was designed to bypass Congress and revive initiatives that lawmakers have rejected, including a push to allow bankruptcy court judges to reduce the loan principals for troubled borrowers.
Banks also have balked at the initial proposal, saying that many of the changes would prove unwieldy and raise fairness questions about which homeowners deserve loan modifications or principal write-downs, and which do not.
This week, the Securities Industry and Financial Markets Association said the proposal "would put at risk mortgage-backed securities investors who stand to absorb the losses from significantly extended foreclosure timelines."
Miller, a veteran of negotiations with the tobacco industry and Microsoft, called such criticisms from the banking industry little more than a negotiation tactic. "We don't place a lot of stock in that," he said, while acknowledging that the term sheet was basically an opening bid for the looming negotiations.