New Proposal Floated in Servicer/AG Settlement Talks
A new plan is on the table in thernseemingly endless parade of negotiations aimed at ending the foreclosure crisisrnand resolving the legal impasses over alleged foreclosure abuses by the bigrnbanks. The latest proposal, detailed inrntoday’s Wall Street Journal, was presented in arnmeeting last week between the banks and government negotiators.</p
According to The Journal</ithe new plan is designed to win the support of California’s Attorney General Kamala D. Harris who, as wasrnreported here, recently announced she would not be a part of the proposedrnsettlement between five major banks and the 50 state attorneys general overrnprocesses used by the large banks’ servicing arms in pursuingrnforeclosures. When Harris withdrew fromrnthe negations she said that the settlement was inadequate for California homeowners. “It became clear to me,” she said, “thatrnCalifornia was being asked for a broader release of claims than we can acceptrnand to excuse conduct that has not been adequately investigated. In return for this broad release of claims,rnthe relief contemplated would allow too few California homeowners to stay inrntheir homes.”</p
If Harris’s statement can berntaken at face value, it seems that the current proposal will do little to dragrnher back on board. The plan would makernrefinancing available to borrowers where the home is worth less than thernmortgage, the borrower is current on payments, and the mortgage is owned by thernbank. The Journal</iestimates that around 20 percent of all U.S. mortgages are owned byrnU.S.-chartered commercial banks with the remainder held by investors inrnmortgage-backed securities. In return thernbanks are reported to want an even broader release from legal claims than theyrnwere seeking before the refinancing proposal hit the table.</p
Lack of equity has prevented manyrnhomeowners from refinancing to take advantage of the current record-lowrninterest rates. CoreLogic has estimatedrnthat around eight million homeowners who are “under water” have above marketrnrates butrnrefinancing through traditional mortgages is not available to most. Some government programs such as HARP havernbeen aimed at helping these borrowers but have been limited to mortgages heldrnor guaranteed by the GSEs or FHA. rnCalifornia has an estimated 2.06 million homes that are underwater andrninsiders have said that it would be difficult to reach a settlement withoutrnthat involvement of the state. </p
The Journal said Housing andrnUrban Development Secretary Shaun Donovan joined two days of discussions lastrnweek, and his involvement initially led banks to believe that final decisionsrncould be reached with state and federal officials (but) “several bankrnexecutives grew frustrated with what they saw as last-minute efforts to changerntechnical but important details that they believed had already been settled.”</p
Friday’srndiscussions became very heated at times according to people close to thernnegotiations the article said. Governmentrnnegotiators “have no idea how frustrated the banks are,” saidrnone. An administration official concededrnthat the discussions have grown more “intense” as banks and therngovernment attempt to narrow remaining differences, but characterized banks’rnconcerns as part of the normal course of finalizing a difficult negotiation. </p
Thernsettlement discussions are expected to result in a settlement of between $20 andrn$25 million and involve the five largest mortgage servicers, all of which arernowned by major banks; Ally Financial, Bank of America, Citigroup, J.P. MorganrnChase, and Wells Fargo. The U.S. JusticernDepartment has also been involved in the talks.</p
Arnspokesman for Harris said they had not seen the new proposal; however Harrisrnisn’t the only AG to be unhappy with the direction of the discussions beforernthis proposal. Delaware Attorney GeneralrnBeau Biden said on MSNBC this morning that he was going wherever therninformation led him in his investigations of lenders and the state was pursuingrnalternatives including a new mandatory face-to-face arbitration betweenrnborrowers and servicers. New York AG EricrnT. Schneiderman is also known to be conducting of the major servicersrnindependent of settlement talks.</p
The Journal article, written by Ruth Simon, Nick Timiraos, and Dan Fitzpatrick, said that the refinance program would be particularly costly for banks because they would be forced to give up expected interest income on loans for which borrowers are current on their loan payments and, given their payment histories, unlikely to default. Banks can’t reduce rates on loans they don’t own because the result would be a net loss to the investor.</p<p
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