Here I was, all set to settle in with a recap of yesterday’s important Senate Banking Committee hearing on foreclosure fraud, which turned the issue from a backwater discussed on blogs into something the chair of the committee called a crisis requiring the Financial Stability Oversight Council to immediately deal with, given the systemic risk to the economy. But very conveniently, at least one item cropped up which needs to be disposed with.
An extremely curious and self-serving story from the Washington Post, which Marcy tackled yesterday, suggested that a settlement was imminent in the 50-state AG investigation, which would involve, among other things, a nationwide restitution fund for borrowers illegally foreclosed upon. Now, as Marcy notes, this directly contradicts Iowa Attorney General Tom Miller’s testimony happening at precisely the time when this story broke, where he told Senators that the investigation would take “months” and that the goal is to “change the paradigm of the servicing industry.”
Furthermore, the named sources in this article are… there are none. Just “state and industry officials.” Which could easily be some Republican assistant AG with an axe to grind, and a JPMorgan Chase lobbyist. Or, as Yves Smith speculates, a CNBC report from earlier in the day. As Yves notes, yesterday was a terrible day for the banks, so conjuring up a report about a settlement certainly makes sense for them.
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 Cordray 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.
The Post rewrote this story for their print edition, including some quotes from Tom Miller, who they caught up with for an interview while he was in DC. In the new story, Miller wouldn’t comment on the specifics of any deal and reiterated that they were months away from any kind of settlement. He outlined the contours the same way he did in his testimony: they want redress for borrowers as well as significant changes to how the servicing industry works. Asked if the goal of the probe is to find a solution to the problem or to create an investigative record for criminal and civil penalties, Miller said, “it’s both,” while being pretty buttoned up, as any prosecutor should be, about the nature of the investigation. And, he notes that his investigators have met with Bank of America two times. Why, surely that would be enough to strike a global settlement!
There’s nothing in this article we didn’t already know. We knew that Bank of America and other firms sought out the AGs for a “quick solution.” We knew that they’d try to claim that was in everybody’s best interest, when that’s mainly in the interest of the banks, to try and get the AGs off their backs. We knew that the AGs would try to force the banks to do right by their customers, particularly with loan modifications that include principal reductions. And we know that the banks have a lot of PR flaks who can feed stories to newspapers like the Washington Post. There’s just no story here.
Setting that aside, if the part about a restitution fund was actually true, let me say that this would be a travesty. A restitution fund would be something that the AGs could announce with a nice little press conference, and in the end wouldn’t mean a damn thing. We’d hear how hard it is for borrowers to actually get standing for a piece of the fund, and so on. Forced principal mods would provide a legitimate benefit to hundreds of thousands of people, if not millions.
Now, if you read Miller’s Q&A, it sounds like he’s seeking both, depending on whether you’ve already been foreclosed upon or if you’re in the process. Let me quote: “We want the modification process to work. And we think whenever there is a loan that means the criteria … the person can make the payment, has ability to make the payment over the long term and the payment is more than the foreclosure [proceeds], we think that should happen. ” And he wants to eliminate insanity like the “dual-track” issue, where the servicer begins foreclosure operations while negotiating with the borrower on a modification.
Now, if you think that’s some kind of wimpy, fast-track settlement, fine. But I think millions of homeowners would disagree with you. Add in the fact that Miller wants to make sure this “never happens again,” and that he’s a prosecutor who understands the importance of how to make a deterrence, and I wouldn’t be so sure that other penalties are off the table either.
The banks are a bunch of liars, and the most likely source for this article. I call bullshit.