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.