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Fannie Mae and Freddie Mac Putting “Profits Before People”?

Now that Fannie and Freddie are essentially owned by the taxpayers, why aren’t these institutions doing more to help homeowners? Particularly, why are they so adamantly against allowing mortgage principal reductions?

These are questions that ProPublica, “an independent, non-profit newsroom that produces investigative journalism in the public interest,” has been following and reporting on in a recent series of articles. I’m highlighting two of those articles in this blog.

Inherently Conflicting Purposes

“Why Fannie and Freddie Are Hesitating to Help Homeowners” describes “Fannie and Freddie’s role in the housing market, and why it seems as if their actions often go against the interests of homeowners.” At the heart of it, these two institutions operate within a conflict about their core purpose: they were set up to make home ownership more accessible, but they are also supposed to make a profit. This first purpose would encourage Fannie and Freddie to be as flexible as possible to allow distressed homeowners to keep their homes. But the profit-making purpose would seem to run counter to letting homeowners too easily get out of their mortgage commitments.

Tax-Payer Takeover Only Complicated the Conflict

Now that taxpayers stand to gain or lose many billions of dollars depending on the profitability of Freddie and Fannie, that would seem to put more emphasis on profit-making and less on homeowner relief. On the other hand, providing significantly more help for distressed homeowners would arguably help stabilize home prices and improve the economy to everyone’s benefit.

As the ProPublica article states:

The two aims of Fannie and Freddie are continually at odds — policies encouraging refinancing and forgiveness for more mortgage holders can increase costs to the taxpayer-owned companies. While the administration has made relief for homeowners their priority, [Edward] DeMarco [the acting head of the Federal Housing Finance Agency (FHFA), which oversees Fannie and Freddie] says his agency’s priority is to protect Fannie and Freddie’s profits, aka taxpayers’ assets. Of course, many of those taxpayers are struggling homeowners, and that is at the heart of the dilemma over Fannie and Freddie’s future.

Mortgage Principal Reduction Caught between the Conflicting Purposes

A second ProPublica article addresses whether Fannie and Freddie will allow some homeowners to reduce their mortgage principal balances. That decision hangs in the political balance because of this same conflict between profitability and helping homeowners:

The Obama administration has repeatedly tried to push principal reduction — reducing the size of a borrower’s mortgage — as a way to help homeowners, especially those with homes worth less than their mortgages. But… time and again, Fannie and Freddie wouldn’t participate: a crippling problem, since the two companies own or guarantee about half of the country’s mortgages.

[Edward] DeMarco [the interim head of the Federal Housing Finance Agency (FHFA), says principal reduction could cost taxpayers $100 billion. Some economists counter that while principal reductions might lead to a short-term hit for Fannie and Freddie, it would ultimately result in fewer underwater mortgages, fewer foreclosures and a healthier housing market — all good for Fannie and Freddie’s bottom line.

To give DeMarco the last word, until my next blog:

DeMarco has… [told] Congress many times that “as conservator, FHFA has a statutory responsibility to preserve and conserve the enterprises’ assets.” In plainer terms, he [states] that his role is to “make sure Fannie Mae and Freddie Mac undertake activities that don’t cause further losses for the American taxpayers.”

DeMarco has strongly asserted his independence insisting that he is promoting needed fiscal discipline.

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The Bankruptcy Consequences of the National Mortgage Settlement

The bankruptcy world played a quiet but significant role in bringing about this controversial $26 billion settlement. So, fittingly, the settlement terms require the banks to make significant changes in their behavior in bankruptcy court.

Before leaving my current series of blogs on this mortgage settlement, I had to tell you about its bankruptcy angles.

The bankruptcy courts are where some of the earliest signs of bank misconduct appeared. For many years before the “robo-signing” scandal broke in the fall of 20010, mortgage lenders had been making a bad name for themselves in bankruptcy court with shoddy accounting and loose paperwork. Unlike most foreclosures—judicial or non-judicial—in which homeowners do not have attorneys representing them, the majority of homeowners in bankruptcy do have attorneys. So when, for example, mortgage lenders try to get “relief from stay”–permission to foreclose on a home under bankruptcy protection—the homeowner has both a convenient forum—the bankruptcy court—and an advocate who can point out to the court that the lender has not credited all the payments, that it has misplaced payments in some “suspense account,” and/or that it hasn’t even provided its own attorney with accurate accounting information or documentation.  

The bankruptcy system also had another player with a major role, as U.S. Attorney General Eric Holder highlighted when he announced the settlement last month:

The U.S. Trustees Program, which serves as the watchdog of all bankruptcy court operations, was one of the first federal agencies to investigate mortgage servicer abuse of homeowners in financial distress.  As part of their investigation, Trustees reviewed more than 37,000 documents filed by major mortgage servicers in federal bankruptcy court – and took discovery in more than 175 cases across the country. 

Accordingly, the Complaint filed against the banks as part of this settlement documentation includes a major section on “The Banks’ Bankruptcy-Related Misconduct,” listing 15 distinct types of misconduct. (See pages 34-38 of the Complaint.)

And each bank’s Consent Judgment contains a series of requirements related to their bankruptcy procedures. (See the Ally Financial/GMAC Mortgage/Residential Capital ”Consent Judgment” here, along with its exhibits, totaling more than 300 pages. The other banks’ Consent Judgments can be found here.)

Here is an example of some of the requirements, as applicable to the banks’ filing of proofs of claim (“POC”) in bankruptcy court, which they file to establish the nature and amount of a debt:

The lender “shall ensure that each POC is documented by attaching:

a. The original or a duplicate of the note, including all indorsements; a copy of any mortgage or deed of trust securing the notes (including, if applicable, evidence of recordation in the applicable land records); and copies of any assignments of mortgage or deed of trust required to demonstrate the right to foreclose on the borrower’s note under applicable state law  … .

….

f. The POC shall be signed (either by hand or by appropriate electronic signature) by the responsible person under penalty of perjury after reasonable investigation, stating that the information set forth in the POC is true and correct to the best of such responsible person’s knowledge, information, and reasonable belief, and clearly identify the responsible person’s employer and position or title with the employer.”

These requirements strike at the rampant problems with insufficient documentation and authorization, including assignments and recordings.  There are similar rules applicable to motions for relief from stay, about fees charged by lenders during Chapter 13 cases, and their loss mitigation behavior during bankruptcy.

Remember that this national mortgage settlement does NOT settle or waive any “claims and defenses asserted by third parties, including individual mortgage loan borrowers on an individual or class basis.” (See the Federal Release, Exhibit F, p. 42, and the State Release, Exhibit G, p. 10, in the Ally Financial “Consent Judgment,” by way of example.) In effect that means that debtors in bankruptcy are not limited by the settlement from pursuing mortgage lenders for their violations of bankruptcy law, including those laws referred to in this settlement. These lenders simply also have their feet to the fire for the next three and a half years while the settlement is in effect and they are being monitored for compliance with its requirements.

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National Mortgage Settlement to Hand Out Cash to Foreclosed-Out Homeowners

Most of the $26 billion or so in this national settlement is designed to help current homeowners keep their homes. But $1.5 billion of it will go to about 750,000 who have already lost their homes to foreclosure. That’s about $2,000 each.

Who’s included?

  • The entire settlement—including this foreclosure cash restitution payment—applies only to mortgages held by the five biggest home mortgage holders and their subsidiaries: Bank of America, Wells Fargo, J.P. Morgan Chase, Ally Financial/GMAC and Citi. To contact these banks to find out if your mortgage is included, go to the special website for this settlement for their toll-free phone numbers and websites. (See the right column, under “Settlement Parties.”)
  • Your home must have been “finally sold or taken in foreclosure between and including January 1, 2008 and December 31, 2011.”
  • One state–Oklahoma—did not join in this settlement, so foreclosed homeowners in Oklahoma are not eligible for this payment.

 What are the conditions for receiving the money?

  • Although one section of the settlement website states that there’s “no requirement to prove financial harm,” the Executive Summary on the same website adds that eligible borrowers are those “who were not properly offered loss mitigation or who were otherwise improperly foreclosed on.” Sounds like some showing of improper servicing or foreclosure behavior by the bank will be required, without a need to prove that this behavior necessarily caused you financial harm. But exactly what information or evidence will be required is not clear yet.  
  • What is clear is that former homeowners will not need to release any potential claims against their mortgage holder in order to receive the money. The payment received would, however, be credited as an offset against any such other claim against the bank.

What’s the procedure and timetable?

  • Within about 90 days, a Settlement Administrator will be selected “to administer the distribution of cash to individual borrowers.”
  • Over the following six to nine months, that Administrator will work with the banks to identify the eligible former homeowners, and send out letters to them to apply for the payment.
  • If you are concerned about the Administrator having your current address, you should contact your Attorney General’s Office to have it send your address to the Administrator.
  • The amount to be distributed to each foreclosed homeowner will depend on how many people qualify and apply. And since the $1.5 billion or so pool of money paid by the banks towards these for payments also pays for “all the costs and expenses of the Administrator,” that reduces what will be available for the homeowners. (The actual amount of the pool, by the way, is actually exactly $1,489,813,925.00—I do not know the reason for that odd amount!).
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Senate Bill 1552B Passed March 5th Provides Strong Foreclosure Protection to Oregon Homeowners

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Senate Bill 1552B (passed by the House Rules committee unanimously) would provide key protections toOregonhomeowners. The B engrossed bill includes most provisions of SB 1552 and SB 1564 as passed by the Senate and would provide strong foreclosure protection toOregonhomeowners. The B engrossed bill contains the following elements:

  • Mandatory Meeting with Distressed Homeowners – Requires lenders to meet with homeowners who are underwater to discuss alternatives to foreclosure with a third party mediator upon borrower request.
  • Mediation for Homeowners in Default – Requires lenders to meet face to face with homeowners in default to negotiate possible alternatives prior to foreclosing, unless homeowner chooses to opt-out. 
  • Housing Counseling – Requires a homeowner visit a housing counselor prior to proceeding with mediation.
  • Fast Track to Mediation – If the homeowner is unable to get an appointment with a housing counselor within 30 days, the housing counselor requirement is waived so the homeowner can proceed directly to mediation.
  • Advance Notification – Notice of mediation must be sent 60 days prior to the notice of sale, which is 180 days before a bank can sell a home in foreclosure. The existing 120 day timeline from notice of default to foreclosure sale remains.
  • Authority to Negotiate – Banks must send someone to mediation that has the authority to accept or reject proposals for foreclosure avoidance measures. If good cause is shown, the mediator may allow the lender’s representative to attend the mediation by other means.
  • Attorney General Oversight – Directs the Attorney General to draft rules and oversee the foreclosure mediation program.
  • No Cost to Homeowner – Allows mediator to waive cost of mediation to homeowner.
  • Exception for Small Lenders – Lenders doing fewer than 250 foreclosures a year (including those filed by affiliates or agents) are exempt from the mediation requirements.
  • End to “Dual Tracking” – Prohibits banks from “dual tracking” homeowners (renegotiating loan terms with homeowners while at the same time  pursuing foreclosure) by only allowing a lender to foreclose if:
  1. The borrower has violated a current foreclosure avoidance agreement, or;
  2. The borrower is not eligible for any foreclosure avoidance measure.
  • Proper Notice – Once a lender has determined it can foreclose, it must provide the homeowner with notice 30 days before the foreclosure date is scheduled. If the sale is postponed, the lender must provide the homeowner at least 15 days’ notice of the new date.                                                                                                                                                                  
  • Right to Damages – A violation of dual tracking provision is liable for a $500 fine, actual damages incurred by the homeowner, and reasonable attorney fees to the prevailing plaintiff.
  • Cloud on the Title – Violation of either mediation or dual track provisions would create a cloud on the home’s title that would prevent a bank from selling an illegally foreclosed upon property.

The  Oregon senate bill 1552 is expected to be signed by Governor Kitzhaber.  Once that happens, these new provisions become effective 91 days thereafter.  

The main thing this does is set up a whole new state-run system of foreclosure workout mediation, which is a pre-requisite to all non-judicial foreclosures by any lending institution which conducts at least 250 of them in a year (so all big banks/servicers are subject).  It requires them to be physically present at the mediation together with authority to negotiate a deal and information such as borrower’s complete payment history, copy of actual note, and chain of title of trust deed.  Interestingly, it also appears to allow for a borrower who is in danger of defaulting to pro-actively make a request for this loan workout mediation ahead of any foreclosure notice being filed by the lender.   This could potentially open up a whole new avenue to getting loan modifications, short sales, and other workout options accomplished.

One other significant new provision is the new law will eliminate any possibility for deficiency in a residential trust deed foreclosure action so long as the borrower (or immediate family) lives in the property at the time of the initial DEFAULT leading to the foreclosure.  This is significant because under the current law, in order to receive this protection, the borrower must live in the property at the time the foreclosure action is commenced, which could be a lot later.  This will make it a lot easier for people to abandon properties to foreclosure without worry of deficiency if they wish to do so.

Two more really significant things in here I forgot to point out earlier:

1)      No more “dual tracking” – basically designed to stop lender from negotiating a workout while at the same time pursuing foreclosure – people will know one way or the other and should reduce those situations where the servicer says everything is coming along great, and then they find out the house was foreclosed on the same day, etc.

2)      This one is similar – lender must re-notify by serving a written notice of any postponement of auction which is either greater than 2 days from initial date or more than one postponement.  This will also eliminate the situation where borrower thinks the auction was cancelled, but really was just postponed by oral proclamation at the time, and no further notice ever required to be given.  This will change that quirky and dangerous system of the past.

The remainder appears to be a lot of language and syntax cleanup of the existing statute.

 

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The National Mortgage Settlement’s Actual Terms Finally Released

The settlement documents of the deal that was announced more than a month ago were finally completed and filed at court on Monday, March 12. They catalog page after page of serious wrongdoing by the banks in their servicing of mortgages and processing of foreclosures.

In my last blog I said that the settlement would be finalized and made public “any day now.” It actually happened only hours later.

The settlement documents consist of hundreds of pages, but I’ll make it easy for you.

One document talks about the past, the wrongdoing by the banks. That’s the Complaint. The plaintiffs are the United States, 49 of the 50 states (all except Oklahoma), and the District of Columbia; the defendants are five of the biggest banks—Bank of America, JPMorgan Chase, Wells Fargo, Citi, and Ally/GMAC, and their subsidiaries, totaling 18 named defendants. This 99-page Complaint is the subject of today’s blog.

The rest of the documents—one Consent Judgment for each of the five banks—talk about the agreed penalties for the banks’ past wrongdoing, but mostly focus on the future: 1) where the money from those penalties is going to be spent; and 2) the new standards by which these banks are now required to service mortgages and process foreclosures.  In my next blog I’ll talk about these penalties, and how they are supposed to help homeowners who have been hurt by the banks.

To say that the Complaint is 99 pages long is misleading, because it actually ends on page 48, followed by signature pages for each of the 51 plaintiffs. And In fact the document doesn’t really get to the point until the Factual Allegation starting on page 21. The detailed litany of bank misconduct goes on relentlessly for the following 16 pages, totaling 55 paragraphs of allegations, some including many subparagraphs of even more detailed allegations. It’s difficult to do justice to all this in one blog. To try to show both the breadth and depth of the alleged misconduct, I’ll give you most of the Complaint’s outline of the types of wrongdoing, and one or two examples quoted under each one:

A. The Banks’ Servicing Misconduct

            1. The Banks’ Unfair, Deceptive, and Unlawful Servicing Processes

Failing to timely and accurately apply payments made by borrowers and failing to maintain accurate account statements; imposing force-placed insurance without properly notifying the borrowers and when borrowers already had adequate coverage.

             2. The Banks’ Unfair, Deceptive, & Unlawful Loan Modification and Loss Mitigation Processes

Providing false or misleading information to consumers while initiating foreclosures where the borrower was in good faith actively pursuing a loss mitigation alternative offered by the Bank; miscalculating borrowers’ eligibility for loan modification programs and improperly denying loan modification relief to eligible borrowers.

   3. Wrongful Conduct Related to Foreclosures

Preparing, executing, notarizing or presenting false and misleading documents, filing false and misleading documents with courts and government agencies, or otherwise using false or misleading documents as part of the foreclosure process (including, but not limited to affidavits, declarations, certifications, substitutions of trustees, and assignments).

 B. The Banks’ Origination Misconduct

   1. Unfair and Deceptive Origination Practices

In the course of their origination of mortgage loans in the Plaintiff States, the Banks have engaged in a pattern of unfair and deceptive practices. Among other consequences, these practices caused borrowers in the Plaintiff States to enter into unaffordable mortgage loans that led to increased foreclosures in the States.

 C. The Banks’ Bankruptcy-Related Misconduct

Making representations that were inaccurate, misleading, false, or for which the Banks, at the time, did not have a reasonable basis to make, including without limitation representations contained in proofs of claim under 11 U.S.C. § 501, motions for relief from the automatic stay under 11 U.S.C. § 362, or other documents.

 D. Violation of Servicemembers Civil Relief Act (SCRA)

The Banks foreclosed upon mortgages without required court orders on properties that were owned by service members who, at the time, were on military service or were otherwise protected by the SCRA.

 The 55 paragraphs of wrongdoing resulted in these five banks agreeing to pay about $26 billion in a combination of cash and other forms, to the states and to individual homeowners. As I said, I’ll tell you how this is supposed to be divvied up in my next blog.

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Federal court ruling against MERS foreclosure in Oregon comes (again) as Republican lawmakers try to validate it

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A federal judge has yet again issued a ruling that effectively questions the validity of scores of foreclosures in Oregon, a crisis the Legislature could resolve in the mortgage industry’s favor this week if bank lobbyists and House Republican leaders have their way.

In an opinion issued Wednesday, U.S. District Court Judge Michael Simon rejected a magistrate judge’s finding and rulings by two of his colleagues that big banks could avoid recording notices in local land records each time a loan is sold to other lenders or investors.

 Simon sided with two other federal judges in Oregon in ruling that lenders have violated state recording law. They’ve done this, they say, by logging sales within its nationwide Mortgage Electronic Systems Inc. and declaring MERS a “beneficiary” of the loan.

The mortgage industry created MERS to reduce the need for recording loan sales, or assignments. That enabled mortgages to be quickly bundled and sold to investors. MERS does not loan money, collect loan payments or invest in mortgages. It is, however, named in certain loan documents as the mortgagee or beneficiary of record.

Simon ruled that under state law, lenders must file a notice in county records each time they sell or transfer a note, or a promise from a borrower to pay.

MERS, he ruled, can file those notices on the lenders’ behalf, if a lender has authorized it to do so. MERS cannot, however, simply log those notices within its own database without also recording it publicly, he found. In millions of loans nationwide, it has.

In acting as he did, Simon overruled lower Magistrate Janice Stewart’s previous findings and recommendations in the case. His ruling also conflicts with opinions in other cases issued by his equals in Oregon — Judge Michael Mosman and Judge Marco A. Hernandez.

But it aligns with rulings in other cases by Judge Owen Panner and U.S. Bankruptcy Judge Frank Alley. Panner’s ruling, which also came last year as lawmakers debated the MERS issue, is on appeal to the U.S. Ninth District Court of Appeals.

-Excerpt taken from  Brent Hunsberger, The Oregonian @ OregonLive.com

See full story here

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The Terms of the Month-Old $26 Billion National Mortgage Settlement Are, Still, . . . “Coming Soon”

The settlement announced on Feb. 9 has been publicly released so far only in a broad outline of its terms. Any day now the actual agreement will be finalized and filed at court. In the meantime here are some tantalizing tidbits.

More than a month has passed since the announcement of the long-awaited mortgage settlement by the state attorneys general and the federal government with the five largest mortgage loan servicers. A special website, set up by the Attorneys General on the Executive Committee that negotiated the settlement, provides a 4-page “Settlement Fact Sheet” and also a “Settlement Executive Summary” of similar length. This website also provides some other possibly helpful information like the phone numbers for the loan servicers involved and the address, phone number and website of each state’s attorney general. But none of that is going to get you very far in any practical way because in fact the details of the settlement are still being put into writing. The “National Mortgage Settlement” has in fact not quite been settled, at least not in detail. As the website says, it’s still “coming soon.”

It’s worth reading the relatively short “Fact Sheet” and the “Executive Summary,” and to look through the rest of the website. Here are some aspects of the deal from those sources that may surprise you:

  • Although 5 loan servicers are involved in this settlement, one stands out, Bank of America, because it is obligated to pay more than twice as much as any of the others. It’s expected to pay (through a combination of cash payments, mortgage write-downs, and refinances) about $12 billion. Much of B of A’s financial exposure comes from its ownership of a huge portfolio of former Countrywide mortgages.
  • The largest portion of the settlement funds—about $10 billion—will go towards reducing the principal balance of mortgages. The banks have been extremely resistant to principal reductions, and this settlement requires the largest reductions ever. However, the amount is still very small compared to the total amount of negative equity among these banks’ homeowners.
  • In an effort to beef up the enforcement side of the settlement, an independent Monitor has been named who will have what at least sounds like significant powers to enforce a detailed set of new mortgage servicing standards. Penalties for violations will be up to $1 million per violation, and up to $5 million for some repeat violations.
  • The mortgage servicers will receive credit for different efforts they make to help their homeowners. The banks will get credit for mortgage write-downs, but also partial credit for write-downs by investors on mortgages that the banks do not own but merely service, as well as for helpful actions banks are already taking like approving short-sales. The compromise was to provide as much benefit as possible to homeowners while giving banks some flexibility in earning credit for their efforts.

The effectiveness of this settlement will depend on how strongly the written agreement is drafted. I’ll provide practical information about this written agreement just as soon as it is filed at court, so please check back here again.

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Will You Benefit from the Just-Completed $26 Billion Home Mortgage and Foreclosure Settlement?

The long-awaited joint federal-state settlement with the major banks for their alleged fraudulent documentation and processing of mortgages and foreclosures was announced on Thursday, February 9. Will it help you, and if so, how?

I interrupt my ongoing series on small business bankruptcy to answer your most immediate questions about this huge settlement.

1. Who is included in this settlement?

  • Only five big banks are currently signed on: Bank of America, Wells Fargo, J.P. Morgan Chase, Ally Financial and Citigroup.  Only mortgages owned and held by them are directly affected.  Negotiations continue with nine other mortgage servicers, which if successful could bring the total amount of money involved to $30 billion.
  • 49 states joined in the settlement; only Oklahoma did not.
  • Mortgages held by Fannie Mae and Freddie Mac—consisting of the majority of U.S. mortgages—are NOT covered.

2. What does this settlement resolve and what is open for further negotiation and litigation? In other words, what liabilities are the banks escaping from for their $26 billion?

  • The claims against the banks that are released in this settlement are limited to mortgage servicing and foreclosure claims. Claims for a variety of other alleged wrongdoing are not covered and so remain open to being pursued by the federal and state regulators, investors, and homeowners. Claims that are NOT covered include those related to the securitization of mortgage-backed securities that were at the heart of the financial crisis, and those against or involving MERS (Mortgage Electronic Registration Systems).
  • Individuals’ rights to bring their own lawsuits or to be part of a class action against any banks for any claims are not affected by this settlement.
  • The settlement does not limit any potential criminal liability for any individuals or financial institutions; it provides no immunity from prosecution whatsoever.

3. How does the settlement help you if your mortgage is held by one of these five banks?

  • If you need a mortgage loan modification, these servicers will (finally!) be required to offer principal reductions, for first and second mortgages, to a value of up to $17 billion. This is where the bulk of the settlement funds are earmarked.
  • If you’re current on your mortgage but your home is worth less than the mortgage, $3 billion of the settlement is to provide refinancing relief.
  • If your home has already been foreclosed, $1.5 billion will be paid out by the banks as a penalty against them–around  $2,000 per homeowner–without you needing to show any damages or releasing any claims against the bank.

4. Where do you go for more information and to find out whether you will be helped in any of these ways?

  • Go to the new settlement website for current and upcoming information about it:

http://www.nationalmortgagesettlement.com

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Massive Mortgage Settlement Finally Coming Together

The multibillion-dollar deal, more than a year in negotiations between the biggest home mortgage servicers on one side and the states’ attorneys general and federal agencies on the other, may be just days from being finished. The deadline for each state’s attorney general to decide whether to sign was Friday, February 3, but that has now been extended to Monday, February 6.

This settlement is to resolve allegations about an extensive series of foreclosure and mortgage loan-servicing abuses that came to light in the summer and fall of 2010. State and federal officials have since then been negotiating an agreement with five major mortgage servicers. It would provide some very specific mortgage relief to homeowners and would establish strict requirements for how banks could conduct foreclosures. The negotiations have gone back and forth, with various proposals being floated, resulting in very public displays of protest by various bank-friendly sets of attorneys general on one hand and by other more aggressive attorneys general on the other. A settlement now looks imminent, in large part because of the timing of the current election cycle, as well as the dire need for progress on the never-ending home foreclosure front —and because this has dragged on for so long.

Since this story is evolving every day, I’m going to provide you with a few recent news articles about it, introducing each one to help you decide if you want to look at it.

This USA Today article gets right to what we all care about, “Who benefits from possible $25B mortgage settlement?”  It’s actually a good summary—in a Q&A format—of the likely terms of the settlement and its effects on homeowners and the housing market. Some of the questions include: “How might the $25B be spent?” “Who will get [mortgage] principal reductions?” “How tough are the potential settlement terms on the banks?

“Mortgage deal would give states enforcement clout” from Reuters addresses the concern “that banks have not adequately followed through on prior settlements, a concern that has pushed government negotiators to establish more forceful enforcement mechanisms in this deal than have been used in the past.” So this deal gives the states, along with a separate “monitoring committee,” the power to go to court to enforce the terms of the settlement and to ask for penalties of up to $5 million per violation.

And if you want to get a taste of how complicated these negotiations have been on the technical side (without even accounting for the intense political pressures), here is a letter dated January 27, 2012 from the Nevada Attorney General to the officials who have been spearheading the settlement. In the letter, she asks for written answers to 38 questions so that her state can decide whether or not to sign on to the settlement. It’ll make your head spin. Don’t say I didn’t warn you.

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A Settlement between the 50 State Attorneys General and the Big Mortgage Lenders–Or Not?

Is the most infamous home mortgage story of late 2010—the “robo-signing” of foreclosure documents—finally coming to closure in early 2012?

For those of us who keep an eye on this stuff, we’ve wondered throughout all of 2011 whether the states’ attorneys general could do what the federal banking and housing regulators seemed unable to do: hold the mortgage lenders responsible for their glaring problems in loan servicing and foreclosure processing.  “Robo-signing” itself involved loan servicing company employees signing countless foreclosure documents in which they asserted personal knowledge about essential facts, when in fact those employees had no knowledge whatsoever of those facts. This then led to the uncovering of one major set of irregularities after another, including the giant MERS fiasco involving serious challenges to the legal authority of mortgage lenders and servicers to foreclose under any circumstances.

When all 50 of the states’ attorneys general got together in late fall of 2010 to address this set of problems, there was hope that they would be able to accomplish what the national regulators could or would not. They were seen as being closer to Main Street than Wall Street, and experienced with dealing pragmatically with both consumer abuses and business concerns. Indeed within a few months detailed draft settlement terms were drafted and being circulated. But then major rifts quickly arose. Last spring, eight Republican attorneys general—from Virginia, Texas, Florida, Oklahoma, South Carolina, Alabama, Georgia and Nebraska—announced that they did not support the draft settlement as being too tough on the banks and unfair to people who were paying their mortgages. Around the same time, the watchdog National Institute on Money in State Politics issued a report stating that the “campaign war chest” of the Democratic attorney general Tom Miller of Iowa

“got a dramatic boost after he announced his leadership of the 50-state attorneys general investigation into foreclosure irregularities. Out-of-state law firms and donors from the finance, insurance, and real estate sector gave $261,445-which is 88 times more than they had given him over the previous decade.”

And now more recently, as the settlement again seems to be finally reaching a close, some of the more liberal attorneys general, from among the most populous and influential states, such as New York and California, as well as perhaps Massachusetts, Nevada, and Delaware, seem to be backing out of the deal because they say that their homeowners would simply not be getting adequately compensated by the banks.

So is there going to be a deal or not, whether it covers all 50 states or not? It certainly now looks highly unlikely that a universal 50-state agreement will happen. And if some of the largest states—such as California and New York—and some with the worst foreclosure problems—such as Nevada and Florida—are not participating, then the banks lose a great deal of incentive to stay in the deal either. There continues to be some indication that a settlement will come together—here’s a very recent Time magazine blogger’s summary of its anticipated terms, which he figures will be “finally unveiled” as early as January. You can read about them there it you want—I won’t be telling you more about any deal terms here until I think there’s a better chance that it will ever come to pass and have any practical impact on my clients.

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