Rumors of Negotiations on Settlement of 50 State Attorney General Foreclosure Probe

Two media outlets tonight, Reuters and a Washington Post blog post, discussed the idea of a relatively quick settlement of the probe by 50 state attorneys general into robo signing and other foreclosure-related abuses.

What is interesting is the timing of these sightings, which came the same day of the release of the Congressional Oversight Panel report on servicing and securitization, the promised American Securitization Forum defense of securitization industry practices, and Senate Banking Committee hearings on foreclosures and securitization.

As we discuss in other posts today, the day went very badly for the industry. The sudden, albeit small, flurry of “settlement talks are on” reports on the attorney general front bears all the hallmarks of a banking industry trial balloon being hyped as something further along to try to create the impression that the mess is on its way to being resolved on terms not terribly painful to banks.

The story seems to have started with a rumor on CNBC, which is being treated with more dignity than it deserves, particularly since the supposed source denied it.

CNBC reported that Iowa attorney general Tom Miller was nearing a settlement of the 50 state probe (we noted yesterday that CNBC ran a credulity-straining report on MERS, so it seems to be the preferred outlet for bank PR these days). But when Reuters contacted Miller’s office, they disputed this account.

Nevertheless, this idea was carried further by the Reuters piece, which quoted Bank of America CEO Brian Moynihan stating that a “quick resolution” of the 50 state investigation would be be the best outcome for all parties involved.

That view strains credulity, unless you are of the “what is best for banks is best for America” school of thinking. The state AGs started their inquiry on October 13, and signaled their intent to go beyond the robo signing scandal. It’s highly unlikely that they have gotten much of anywhere with their probe. And in normal negotiating settings, quick settlements take place only when there is little difference of views between the two sides on the facts or limited resources on both sides, which created a mutual recognition that they have a vested interested in reaching a resolution expeditiously. Neither of those conditions apply here.

So the argument that a quick settlement is best can only be based on the assumption that an investigation will uncover real dirt, and create market uncertainty. And of course we can’t have that, now can we?

That hidden assumption, that there is real risk should investigations continue for a protracted period, is the polar opposite of the position that the banks have taken thus far, that there is nothing to see here, that the robo signing scandal was merely procedural (as if frauds on the court are mere “procedural” miscues) and the underlying foreclosure actions were all correct.

This evening, we see this rumor carried a step further in a post by Washington Post blogger Ariana Eunjung Cha:

The 50 state attorneys general are in negotiations over an agreement over foreclosures that would include a victims’ compensation fund that would provide money for borrowers whose homes have been taken away improperly, according to state and industry officials.

The discussions are still preliminary and the final deal may change significantly as details are hammered out and the settlement is vetted by 50 separate state offices, the official said.

While there’s no universal agreement that would apply industry wide and the AGs are negotiating separately with each bank, many of the stipulations are the same for the agreements being discussed with the three largest mortgage servicers: Bank of America, JP Morgan Chase and Wells Fargo.

Both sides have tentatively agreed that mandatory third-party mediation if a homeowner requests it is something that should be included. They also agree that there should be no more “dual track” loan modification negotiations that end suddenly with foreclosures. Many homeowners have complained that they were in the middle of loan modification discussions when they were foreclosed on or told to default on their loans to get a modification, and then ended up having their home foreclosed on.

The most radical part of the settlement deal has to do with providing monetary compensation for homeowners who have lost their homes but can prove that they have been foreclosed on wrongly.

Yves here. Exactly how many sources are there for this story? As I read it, it could be as little as the CNBC and Moynihan statements (if you believe the Miller rumor, he’s a state official, Moynihan is clearly an industry official), plus a conversation with one unnamed official (presumably industry).

And the account simply does not add up. First, we have Ohio, which is one of the lead actors in this 50 state effort, pushing for a speedy trial in a robo signing case in which it is seeking sizeable damages. I can’t see Ohio agreeing to any settlement as long as Ohio attorney general Richard Corday is in office (admittedly only till the end of January). And he is clearly trying to get enough stakes in the ground so as to limit his successor’s ability to make a radical retreat. In addition, the supposed process for these negotiations, which the Washington Post says is bank by bank, assures a protracted process. And it ALSO indicates that any settlement would have to be approved by 50 “separate” state offices. So even by the account presented in the Post, there is not a cohesive front on either side of this supposed initiative, which begs the question of who exactly is driving this train.

The only way you could get fast resolution in situation like this is to get all the parties in a room and treat it as a a two-sided negotiation.

However, we have indicated that efforts by attorneys general need to be regarded with some skepticism. We’ve pointed to instances in which AG initiatives add up to far less than their headlines would lead you to believe. They do have incentives to collect a scalp quickly and declare victory. But given the high level of public ire and the economic importance of the foreclosure crisis, the AGs are likely to appreciate the dangers of appearing to cave in to bankers. They clearly have them on the run now; why act in haste when keeping the pressure on will lead to a more favorable outcome?

The one area where I could see a relatively quick resolution is if the robo signing abuses were carved out from the other issues and negotiated separately. But overall, it appears likely that this convenient story of advanced settlement talks is just that, a mere story.

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  1. Francois T

    So the argument that a quick settlement is best can only be based on the assumption that an investigation will uncover real dirt, and create market uncertainty. And of course we can’t have that, now can we?

    We can’t have that? Oh man! I’d have that every day at supper time for the next 6 months. A real, a la Pecora commission where financiers, banksters, lawyers and shysters are made to squirm and twitch under a withering, implacable and systematic interrogation by a top gun AG who can make the difference between political expediency (in a word, NOT an Eric Holder clone) and the Common Good.

    Yet, this scenario is deemed unthinkable nowadays.

    That should tell us everything we need to know about how far deep in the depravity hole this country has got into in the last 3 decades.

  2. unirealist

    Pardon my cynicism, but I can’t imagine anyone standing up in the ring against the mighty banking cabal, not for even a single round.

    There’s just no way the banks are going to lose until — and this is important — until millions are starving in the streets. Anyone with a stake in the game (and that’s just about everybody, even those at the lower socioeconomic strata) is afraid of losing what they’ve got. It won’t be until there are mobs with nothing left to lose that the bankers can be truly called to account.

    No, the Federal Government will pervert the Constitution in any way necessary to weasel the bankers out of this mess.

    1. Tao Jonesing

      Your cynicism is warranted, as is Yves’ optimism. Both are correct responses to the events of the last few years, which cannot help but shock the conscience of those who still have one.

      Unfortunately, evil is the new good (both figuratively and literally; evil has been commoditized and is being sold every day), which leads me to conclude that your analysis is the correct one.

  3. Koshem bos

    If Obama and the Democrats can devise a magic legal trick to make the foreclosure crisis disappear, they’ll do it without hesitation. The Repubs will gladly join.

    The people have no chance in hell in our oligarchy.

  4. Paul Repstock

    “Negotiations”..when the ‘investigations’ have hardly begun??

    The idea makes me somewhat ill..I hear small echos of Columbian and Mexican “Negotiations”..Silver or Lead?

  5. attempter

    Not that I was expecting much from state investigations, but it’s telling that the banksters can even try to float this PR balloon at all this early. If the investigations had any there there at all, wouldn’t it be risible on its face that they could be even remotely close to a “settlement”?

    If this were, 1. a real investigation to uncover the full extent of the securitization and foreclosure crimes, and 2. the banks themselves didn’t simply cave in (not likely), then wouldn’t this necessarily have to be a long, hard slog before anyone could even be thinking settlement?

    (According to the WaPo it would be “radical” for the banks to have to compensate those who wrongly lost their homes? Everyone should know, that’s what the MSM thinks of us. That’s the attitude we should reciprocate.)

    I agree with those who have already said the people will have to do this themselves. The way out is already clear: All debtors should stop paying the mortgage but stay in the house and continue to pay the property tax.

    The only obstacle to breaking the banks that way is cultural resistance among the bank-brainwashed debtors themselves.

    1. Paul Repstock

      I agree with your strategy Attempter….
      –“All debtors should stop paying the mortgage but stay in the house and continue to pay the property tax”
      They also need to be certain to pay their insurance. In spite of the posibility that the bank collects the bulk of the insurance. (At this point I would not rule out numerous lender contrived “accidents”.) If the homeowner/mortgagee dose not have coverage, the consequences could be devastating. The bank will certainly have their own coverage, but not to benifit the homeowner.

      This strategy obviously is not for everyone. I don’t recomend abject surrender. But, many people would not be emotionally capable to deal with the continuing threats.

  6. Expat

    I think it’s pretty obvious that robo-signing will be allowed and grandfathered in. MERS will get full legal status. Mortgage law (or at least the enforcement of it) will be changed to reflect the principle of the agreement rather than the letter of the contract.

    All in all, it will another nail in the coffin of the rule of law and the sanctity of contracts. The banks will continue to argue that the driving principle is that borrowers did not pay so foreclosure is moral and legal. Any errors are acceptable since they are minor. No legal consequences will be allowed for erroneous eviction, B&E, etc.

    In a nation where the President can “write” his memoirs and state in black and white that he was the Decider Guy who decided to become the Torturer Guy and no one arrests him, then that nation is fucked. And so it goes with the economy and finance.

  7. mannfm11

    When we going to have handcuffs? I think the entire management of Bank of America would be a good start. $20 million each fine and 180 days in prison minimum. Then get in there and dig up the real dirt. This entire matter as it broadens gives the stink of a long term plan to conceal hundreds of billions in theft. I have wondered why these jackasses have stuck around in this mess instead of taking their money and running. It is clear. The successors would point out what had been done and they would go to prison. Instead, guard the stuff until it blows over.

    The reason for robosigners might not have been totally fraud, as it is attractive to prepare documents for 50 cents each instead of a couple hundred dollars. But, the very procedure stinks of fraud. The robo-signing being the least of it. The total idea that they hid the chain of title and then had what I have to believe is not even a legal means of conveyance is insane. The rule of law is a settled practice and procedure, not something that can be changed at a whim of a group that claims power they don’t have. Every state in this group should revoke any charter of these banks to do business in their states. Make them all move to Washington DC our out of the country and take their talent, which I have to believe the talent is how to steal better than the next guy, with them.

  8. Sid

    My little ones, my trolls, my clowns! Be clueful! Strive for clueicity and spurn cluelessness!

    A State AG is a political office. Whether elected or appointed is of no relevance.

    The job of the politician is to star in press conferences where he can put on the appearance of Doing Something. Whether or not something is done, whether the right thing is done, or whether anything should be done at all is of no matter. (Politicians have even been known to exaggerate crises so that they can be seen leading the clamourous public to safety. This is not one of these cases.)

    The fact that most of these politicans share essentially the same interests as the bankers they purport to investigate suggests that nothing will come of this.

    Politicians have feelings too. Imagine how Congressman Jackman must feel when trying to hobnob with his campaing contributors, the Great and Good, the Town Fathers of his district, and they tell him their portfolios are down, all because the pigheaded Congressman didn’t get in line and vote to insulate the banks/servicers/etc. from their fraud, greed and stupidity. How he passed up on a fat barrel of free pork for his district and a chance to curry favor with the President.

    I know it’s blasphemy ’round here to say this, but movements like the Tea Party are the best hope I see, to the extent its membership continues not to share common interests with the current establishment. The problem is not the Tea Party outrage against the financial circuses sector, rather that the members don’t act the way we think they should.

    Tom Wolfe wrote some delicious parody of the overeducated classes and their attitudes towards actual workers, the workers that don’t line up with the identity politics so beloved of the left.

    1. dejavuagain

      Please remember you all:

      Real estate law is private law – what the AG does or states is irrelevant as to the relationship between private parties.

      The state AG’s have no power to bind the state judiciaries – which can completely ignore anything the AG’s agree to.

      The state AG’s have no authority to turn the state effectively into a title company.

      The state AG’s have no power to affect the rulings of the bankruptcy courts.

      The state AG’s most likely cannot alter the impact of NY State trust law.

      The federal government could agree not impose any penalties for the REMIC tax liability, taking the pain out of some of the trust problems – but, first the bonus pools of the banks are to be reduced by 90%, across the board starting with the pool for 2010. In addition, the banks have to give up all of their second liens on property under water – perhaps, allowing for a short form special bankruptcy proceeding to wipe out the second lien (even if borrower is not in regular bankruptcy) – but, the bank will pay all fees of the borrower seeking to wipe out the second lien if the borrower is successful – plus a $5000 penalty. The only burden of proof of the borrower would be is that the second lien is out of the money by at least 10%.

      The proper thing for the banks to do is to take the pain and cure all loan documentation defects without regard to the impact on the trusts.

      Any AG settlement should consider the following:
      Any substitute for MERS should be responsible to the public, not the banks – and should not try to substitute for local recording. In addition, MERS or its replacement must be required to maintain publicly accessible images of all documents and can never delete documents or information, Banks “using” MERS must agree to be bound by MERS records and must agree to keep MERS current. All filings with MERS should be date stamped and receive a number for each filing or change. Borrowers should be insured by MERS – if a borrower pays the lender shown on MERS, then MERS should guarantee that the borrower made proper payment. MERS should insure title upon transfer. The owners of MERS shall have joint an several liability as to the insurance obligations of MERS, and such liability by statute should extend to the director or indirect owners of the institutions owning MERS. If MERS maintains inaccurate information, it shall be fined $100 a day for each loan, starting 10 days after notification of the error, unless the error is systematic in which there is no 10 day period. MERS members causing the inaccurate information should then cover the penalty jointly and severally.

  9. svsm

    We are continually told that we must accommodate the corruption of the TBTF’s because the consequences of not doing so would be economically dire. What’s at stake here though, is the people’s complete loss of faith in their government, court systems and a functioning financial system. I believe the faith and trust of the general population is the system that is absolutely too big to fail. Sadly, it seems our government doesn’t see it that way.

    What is the point of keeping these corrupt, bloated, insolvent institutions afloat and free from legal liability when it’s killing the trust of the people in the system to do so? It can’t end well.

  10. Gepap

    I wonder how much of this talk has to do with the fact that the winner of the NYS AG’s race to replace outgoing AG and future governor Cuomo was the “anti-bank” candidate that promised to continue policing Wall Street, and not the industry friendly one?

    Also, given that so much of the discussion involves possible violations of NYS Trust law, could not this new AG initiate possible criminal investigations under the theory that any pervasive failure to accurately convey notes to the trusts amounted to actual attampts to defraud investors?

  11. Arciero

    “The only obstacle to breaking the banks that way is cultural resistance among the bank-brainwashed debtors themselves.”

    I’m reading up today on HR3808 being sped through both houses of Congress, potentially overriding Obama’s veto, about interstate notarization being allowed and the robo-signing, and how some attorney generals like the one in Ohio are against it.

    If both parties passed this viva voce, stop looking at Congress. I doubt the banks have greased the palms of your state legislators. All the attorney generals should get together with their state legislatures, and if 38 states approve it, any law that even Congress comes up with is made unconstitutional. The threat of that even occurring should suffice, because Congress are scared of any potential upstanding of their power.

    1. Arciero

      “I doubt the banks have greased the palms of your state legislators.”

      Let me clarify. The banks have not greased the palms of your state legislators to the extent and level they have the federal ones. First, there’s too many of them. Second, their influence would be minor since it’s only state-level. Third, your state legislators are far closer to your individual voter and what they’re hearing than a congressman or senator would be.

  12. sonya brewer

    Where’s our Money, Where’s our deal, The FTC Got paid a settlement for 28 million dollars, they sent me a check for 40 dollars, come on , the SEC get’s money when someone does not admit any wrong doing but pays the fine, The government bails out banks, WHERE is anything for us. THE banks and Government Know that we do not have the money to pay for litigation and in my case Pro-se is not good in SC. The Government knows this and they know what I have I sent it to them.They hope I will go away, well how about this if there is an Attorney, or Media someone willing to back me You will have an exclusive story including all the documents, we together can find the the Investors, major news, give me a chance I have proof!!!

  13. JOE

    If you want to find out what has really happened in this country check out the website of who documented today’s events, foreclosures, and economic meltdown back in 2004 in several California lawsuits. All the Attorneys General needed to do was to follow his lawsuits.

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