Eight mortgage lenders, led by the big three of Citigroup Inc., JPMorgan Chase & Co. (JPM), and Bank of America Corp. (BAC) have submitted their plans for fixing their foreclosure procedures -- due on July 13, 2011. However, the Office of the Comptroller of the Currency (OCC) has decided to keep the plans “confidential.”
Federal and state authorities continue to work on the provisions of an overall settlement. According to the U.S. Department of Justice (DOJ) spokesperson Jessica A. Smith, the lenders' plans have considered “detailed negotiations” that have been taking place with state Attorneys General and officials from various federal departments.
The claims actually involve eight lenders and two mortgage service providers. The Office of the Comptroller of the Currency accuse these companies with questionable and reckless practices when servicing mortgages and foreclosing on borrowers’ homes. Other lenders include Fargo & Co. (WFC), U.S. Bancorp, PNC Financial Services Group Inc., MetLife Inc., and HSBC Holdings Plc.
The Mortgage “Rabbit Hole”
The federal government and the mortgage lenders are pushing to bring the final stages of the negotiations to a quick resolution. However, some State Attorneys General Offices insist on a more extensive investigation into the wrongdoings. Delaware sent a subpoena to the Mortgage Electronic Registration Systems Inc. (MERS) - a company with no employees, and set up by the major lenders, to automate and streamline the mortgage process by doing away with paper. The document obligates MERS to answer 75 questions.
In addition, New York Attorney General Eric Schneiderman believes a comprehensive investigation of the mortgage industry needs to take place, including deceitful mortgage lending practices, faulty securitization procedures and defective foreclosure activities.
Other states continue to delve into court records, stuffed with documents that demonstrate the extent of the mortgage bankers attempt to litigate falsified foreclosure claims against mortgage borrowers - particularly the “rebo-signing” activities. Investigators also want to know Lender Processing Services' responsibilities, since it represents the largest mortgage lenders in foreclosure actions.
It important to note, these negotiators have also been privy to some “confidential” federal audits that have undoubtedly fueled their curiosities and desire for stricter penalties for the bankers. The audits revealed the five mortgage lenders violated the False Claim Act by cheating the American taxpayers by submitting “false claims” to the Federal Housing Administration for reimbursement on homes foreclosed with fraudulent and faulty paperwork.
Bank of America and another lender simply refused to cooperative.
Broader Settlement Status
Meanwhile, in negotiations, which begin the DOJ, Housing and Urban Development (HUD), and 50 Attorneys General inches closer to a separate resolution with the five largest mortgage services - Ally Financial, Inc., JP Morgan, Bank of America, Citigroup and Wells Fargo.
Some of the concerns still unresolved:
- Federal and states negotiators need to agree on the degree of “release liability” for bankers
- Percentage of the pot to allocated between mortgage modifications and bank fines
- Procedures for monitoring and enforcing the settlement agreement
Tom Perrelli, an Associate U.S. Attorney General, states the banks have come to the “realization” that the $5 billion settlement the mortgage lenders proposed during earlier negotiations, will not suffice - the settlement will reportedly cost the banks $20 billion. The details of this agreement will service as the model for pursuing claims against the remainders of the industry regarding mortgage servicing and foreclosure framework criteria.
Recent history has shown the chances are the mortgage lenders will reach an agreement with the State Attorneys General and the various federal agencies represented at the table. The emerging settlement scenario seems to be the establishment of a fund to enable each state to settle civil mortgage claims.
Mortgage lenders would also set up a federal fund, which offers some type of mortgage relief for homeowners. Any mortgage modification provided for a customer would count towards the bank's relief requirement. The parties must still work out standards for awarding credit.