A proposed $20-billion settlement to an investigation of fraudulent mortgage foreclosure practices across the nation could help underwater borrowers in Mississippi hang on to their homes through write downs on principal balances.
Mississippi Attorney General Jim Hood has been part of the national coalition of 50 attorneys general formed in October to investigate the flawed foreclosures that forced some of the nation’s largest banks to temporally halt foreclosures in the fall. Hood has declined to say how he views the settlement. “Our attorney advises that there is no comment we can make,” his office said in an e-mail last Wednesday.
Hood said in a December interview that he could not divulge specifics of the investigation but noted “as a whole we’re trying to figure out was there any type of conspiracy in the large banks” to gain from deceptive trade practices.
He also emphasized the challenge of framing an acceptable settlement. “Where the tire hits the road is getting these homeowners some sort of remedy. That’s where it is difficult.”
Hood noted in the late 2010 interview the likelihood that Mississippi homeowners could be among victims of the robo-signings in which the nation’s giant banks forced borrowers from their homes without evidence the banks actually owned the mortgages. “Just based upon what we have seen looking at what national banks have done in other states, the odds are it’s happened in Mississippi,” Hood said, though he could not give specifics on the numbers of flawed foreclosures that may have occurred in the state.
The proposed settlement is reported to force banks to fix the foreclosure process and streamline loan modifications. Much of the news on the settlement has focused on the idea of a $20-billion payment. The payment, according to The Washington Post, would be used to help write down the principal balances of the 22.5 percent of U.S. homebuyers who owe more than the market value of their homes.
Mississippi banking commissioner John Allison said he is unsure how the settlement money would be distributed but noted in previous settlements pro-rata shares have been used in deciding the distribution. “It’s more of a pro-rata thing based on who is in your state” who may have been victimized by the procedural violations. “I don’t know if they are going to be searching out these people or that the homeowner may have to reach out to the bank.”
In the HSBC and AmeriTrust settlements, a national consortium of state bank examiners oversaw distribution of settlement money to the states based on the number of loans the lenders had in each state, he said. These settlements, however did not involve the sort of procedural and disclosure violations found in the “robo- signing” foreclosures, Allison added.
“This is a little different. It seems they are going to reach out and try to refinance on new house values, new income streams. Probably each situation will be different.”
Allison said he expects at least 90 percent participation of the states in a settlement, and perhaps as much as 100 percent. In all likelihood the settlement will involve “five or six of the largest” mortgage loan servicers, he added.
Putting $20 billion into a refinance pool could spare the banks from continued massive foreclosures. “Banks don’t want the properties,” he said. “They would be better off to take the hit, put it on the books at its present lower value and refinance predicated on the lower value.”
Banks would probably still be doing 100 percent financing, but “they would at least have some cash flow coming in to at least satisfy the debt.”
Gretchen Morgenson, assistant business and financial editor at the New York Times, wrote in her “Fair Game” column last week that it’s unclear what state attorneys general must give up regarding future lawsuits or enforcement actions against the banks if they sign on to the settlement.
“Typically, such deals contain releases barring participants from bringing new but related cases,” she wrote.
But barring attorneys general from bringing actions against lenders “for lending improprieties is no way to hold dubious actors accountable,” Morgenson said.
Curbs on future suits are worrisome, she wrote, because her reporting has found that the coalition of attorneys general has done little to determine the true extent of the wrong-doing. She said sources have told her no witnesses had been interviewed and that the coalition had sent out just one request for documents — and it has not yet been answered.
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