As readers know, we’ve been very critical of the 50 state attorneys general mortgage “settlement” talks. The reason has been very simple. The leader of the negotiations, Tom Miller of Iowa, early on cast his lot with the Administration’s banking regulators, who are at best cognitively captured and at worst corrupt, rather than siding with the rule of law or the interests of the nation’s citizens. He took their lead and pushed for a quick resolution, when any “settlement” by definition depends on the prosecutors having a real case with decent odds of serious damages as a cudgel to bring the perps to the table and extract real concessions from them.
In the absence of doing investigations to develop a case, all the banks have to “settle” is robosigning abuses, which since they are sorta cleaning those up anyhow, does not add up to any kind of threat. Thus all the banks have to do is the obvious: call Miller’s bluff.
This update from American Banker (hat tip Mike Konczal) shows the Miller-led effort retreating from the only meaningful concessions, that of serious fines and/or principal mods (note we had not been a fan of this approach to principal mods; any bank funded mods would be too shallow to make any real difference. It would have been better to have any bank fines go to building infrastructure to do real principal mods that would come out of the mortgage securitizations, as well as pay for banks to write down their second mortgage portfolios):
After months of stalemate, the state attorneys general have proposed new terms to the top five mortgage servicers that drop some controversial provisions of their first attempt at a settlement, including a push to force banks to reduce principal on thousands of mortgages…
Banks have privately said that they will not agree to a fine above $10 billion — far below a discredited $20 billion figure floated in the press two months ago — arguing that regulators have not provided evidence that servicing problems led to wrongful foreclosures.
The AGs are considering using whatever money they receive from banks to start a “cash for keys” program to help troubled borrowers move out of their homes and speed the foreclosure process by providing them cash incentives to leave. The funds are also expected to be used to promote mortgage counseling and offer some forebearance to troubled homeowners.
While banks have not agreed to the new terms, they do appear much more beneficial than an offer made in February, which demanded sweeping changes across the servicing industry, including principal reductions. By dropping that requirement, banks have already scored a key victory, observers said.
There is one useful demand that still remains: that the banks end dual track (moving forward with foreclosures when they are also considering a mortgage mod). There is also a new requirement, of letting borrowers who applied for HAMP and were denied a permanent mod to reapply for HAMP (given that most people in that position were foreclosed upon, since they were hit with arrearages and fees when they were turned down for a permanent mod, this is a bizarre concession to request, it seems to have no practical value limited PR value but will allow the banks to act as if this is a real imposition and ask to have something else traded against it).
This demand sounds promising but is actually a huge Trojan horse, and I am troubled it is being included:
The revised term sheet raised some new issues, including a proposed requirement for more documentation concerning the basis of knowledge for a foreclosure and notes and assignments. The state AGs are seeking to require documentation on the appropriate transfer and delivery of endorsed notes and deeds of trust at the formation of a mortgage-backed security. Essentially, servicers would have to document that they not only have positions with the MBS but document that the securitization was formed properly.
The servicers are not going to want to assume responsibility for certifying events beyond their control. It was the originators and the trustees that were responsible for making sure that the securitization was done properly, and the liability for the failure to form the securitization probably rests most heavily on the trustee, who provided multiple certifications that they got all the assets (forgive my being approximate in my use of legal terminology, but conceptually this is accurate).
This ask sounds troublingly like it is setting the stage for a broad waiver of liability for mortgage abuses, a step we have roundly opposed. No one has any business giving broad waivers when they don’t know what bad conduct they may be forgiving. And the ample evidence of abuses in the improper application of payments and the use of junk and pyramiding fees suggests there are a lot of bad practices the servicers would love to have forgiven before anyone can attach a dollar tag to what they really are worth.
The only good news is the article also reports that there may be no deal, and says that some AGs are reluctant to accept an agreement when they don’t know the extent of the abuses. Having this come to naught would be the best outcome for the public at large.