Everything you heard from Shaun Donovan yesterday about an “imminent” foreclosure fraud settlement is predicated on the idea that Democratic Attorneys General, of which between 1/3 and 1/2 have pursued or are supporting their own investigations, will sign onto the deal in the end. To help that along, Donovan, along with the short-timer at DoJ Thomas Perrelli, will hit the road to pressure the Democratic AGs to go along with the settlement.
State attorneys general are being invited to meet with U.S. Housing and Urban Development Secretary Shaun Donovan and a Justice Department official to rally support for a proposed settlement with banks over foreclosure practices, said the Iowa Attorney General’s Office.
Materials about the proposed deal are being sent to all states, and Democratic attorneys general have been asked to meet on Jan. 23 with Miller, Donovan and Associate Attorney General Thomas Perrelli, said Geoff Greenwood, a spokesman for Iowa Attorney General Tom Miller [...]
At the Jan. 23 meeting in Chicago, the federal and state officials will answer questions and discuss details of the potential deal in an effort to win support, Greenwood said. Republican attorneys general will separately discuss the proposed settlement by phone the same day with their Republican counterparts on the negotiating committee in addition to Donovan and Perrelli, Greenwood said.
We have broad outlines of the deal, but nothing entirely specific. It looks like the settlement rises in value with California’s participation. New York is also a big state, even if it doesn’t have as many foreclosures, but only California changes the settlement value. That suggests that HUD and DoJ believe they can corral Harris into a settlement, even though there’s been no actual evidence of this.
What hasn’t received enough attention is the extent to which we’ve already been down this road. In 2008, 12 AGs entered into a settlement with Bank of America over Countrywide lending practices. As part of the settlement, BofA agreed to modify as many as 400,000 mortgages, costing $8.4 billion, with a variety of types of mods, including principal reductions and refinancing. In addition, servicer practices were supposed to change and foreclosure operations on the affected homes suspended.
None of this happened. We know this because Nevada Attorney General Catherine Cortez Masto filed a lawsuit last August based on eyewitness testimony and case studies of borrowers covered by the settlement. Not only did BofA fail to modify the loans, they actively harmed the borrowers involved. This is from the lawsuit:
In her filing, Ms. Masto contends that Bank of America raised interest rates on troubled borrowers when modifying their loans even though the bank had promised in the settlement to lower them. The bank also failed to provide loan modifications to qualified homeowners as required under the deal, improperly proceeded with foreclosures even as borrowers’ modification requests were pending and failed to meet the settlement’s 60-day requirement on granting new loan terms, instead allowing months and in some cases more than a year to go by with no resolution, the filing says [...]
The complaint says the bank advised credit reporting agencies that consumers were in default when they were not, and contends that Bank of America employees deceived borrowers about why their requests to modify loans were denied. In addition, it says, the bank falsely claimed that the actual owners of loans had refused to allow changes to their mortgages, and it incorrectly claimed that borrowers had failed to make payments on trial loan modifications when in fact they had. Bank of America also misled borrowers, the Nevada attorney general’s filing noted, by offering loan modifications with one set of terms only to come back with a substantially different deal.
Among the more troubling findings in the Nevada complaint is the contention by several Bank of America employees that the company imposed strict limits on the amount of time they could spend on the phone assisting troubled borrowers seeking help with their loans.
One worker said in a deposition cited in the complaint that employees were punished if they spent more than seven minutes or 10 minutes with a customer. Even though these limits allowed almost no time for assistance, Bank of America employees who did not curtail their conversations were reprimanded, this employee said.
Why would you enter into a settlement with the same banks that did not abide by the terms of the settlement the last time? I’ve heard the settlement described as a slap on the wrist. It’s not even that! It’s an attempted slap on the wrist where the guilty party avoids the slap! That’s the history of mortgage settlements over the past few years. And there’s no reason to believe we will have better enforcement of the deal this time. Indeed, everything I’ve seen suggests that the principal reductions and loan modifications will be discretionary on the part of the servicers. The banks can pick and choose on whom they bestow a modification.
Masto wrote in her complaint on the Countrywide settlement that Bank of America’s “misconduct cut across virtually every aspect of the Defendant’s operations,” and they “materially and almost immediately violated the Consent Judgment.” Bank of America employees are named in the lawsuit asserting this. I don’t know why any Attorney General, knowing this, knowing the complaints they have surely received, would enter into the same kind of settlement with the same banks. It’s a case of “fool me once…”