California Out of Servicer Settlement Deal
A huge crack appeared in the unified front represented by the 50 states’rnattorneys general (AGs) on Friday when California withdrew from multi-state negationsrnwith major banks over their foreclosure practices. California Attorney General Kamala Harris,rnwho as late as September 25 was described in the LA Times as a key player in the negotiations, announced that shernwill instead continue her own probe in an attempt to reform bank practices and preventrnforeclosures.</p
The settlement, first made public last March, was between a consortium composedrnof the 50 state AGs and several federal agencies and five banks which operaternsubsidiaries servicing the majority of the nation’s mortgages. The banks, Wells Fargo, JP Morgan Chase, Bankrnof America, Citigroup and Alley Bank (formerly GMAC) have been accused of arnnumber of violations of federal and state laws while pursuing foreclosuresrnagainst those mortgages. </p
The settlement calls for payment by the banks of an amount widely reportedrnto be $20 billion to compensate borrowers harmed by banker/servicerrnimproprieties. The servicers, in returnrnwould be absolved of further legal action from the state and federalrnparties. </p
The settlement document covers a wide variety of topics relating to the relationship between servicers and borrowers,rnservicers and investors, and servicers and various regulatory groups and makesrnspecific recommendations across a range of concerns. It envisions the establishment of a third-party monitor selected by thernAGs and the Consumer Finance Protection Bureau (CFPB) which will have access tornrecords and can audit servicers’ performance; would require servicers set uprninternal corporate governance procedures to monitor compliance with thernsettlement agreement, and establish unspecified penalties for future violations.rn The servicers would be required tornreport regularly to both the AGs and the CFPB. </p
In a letter written to Associate U.S. Attorney General Thomas Perrelli andrnTom Miller, Attorney General of Iowa who heads the 50-state consortium, Harris saidrnthat the proposed settlement is inadequate for California homeowners. In the midst of negotiations, she said, foreclosuresrnin her state had surged again and an additional 560,000 Californians had lostrntheir homes. “It became clear to me,”rnshe said, “that California was being asked for a broader release of claims thanrnwe can accept and to excuse conduct that has not been adequatelyrninvestigated. In return for this broadrnrelease of claims, the relief contemplated would allow too few Californiarnhomeowners to stay in their homes.</p
“After much consideration, I have concluded that this is not the dealrnCalifornia homeowners have been waiting for.” </p
Harris had been under increasing pressure from powerful players in her staternregarding the settlement negotiations. rnLast week a newly formed group, Californians for a Fair Settlement, sentrna letter to Harris calling on her to reject the settlement on the grounds thatrnit lacked significant principal reduction for troubled California homeownersrnand has overly broad liability release language that would hamper future investigationsrninto bank practices. </p
The group which included unionrnleaders, Lt. Governor Gavin Newsom, U.S. Representative Maxine Waters, andrncommunity representatives, called the proposed $20 billion settlement amount “outrageous”rnand “a figure which might not even be enough to cover damages for thernstate of California, let alone the entire country.”</p
Several other attorneys general, including those in New York, Delaware,rnNevada, Massachusetts, Kentucky and Minnesota, also have criticized thernproposed settlement as inadequate, and some have launched theirrnown investigations.</p
Harris said she would continue the investigation into bank practices thatrnshe began several months ago with the establishment of a Mortgage Fraud StrikernForce which she has invested with significant investigatory authority. There will be, she was, thorough look at whatrnhas happened and a willingness to expend the time and energy necessary tornachieve it. She also committed tornpushing for new legislation that would ensure transparency and eliminaternincentives that mitigate borrowers’ rights in foreclosure.
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