Four AGs say foreclosure settlement proposal promotes strategic default
Four Republican attorneys general participating in the investigation into mortgage servicing practices wrote a letter to Iowa AG Tom Miller stating that the proposed settlement is too strict. Florida AG Pam Bondi, Texas AG Greg Abbott, Virginia AG Kenneth Cuccinelli and South Carolina AG Alan Wilson sent the letter Tuesday explaining among other claims that homeowners would strategically default on the mortgage in order to take advantage of the consumer-friendly terms. The 50 state AG investigation came after the largest mortgage servicers were found last fall to be foreclosing on homeowners improperly through faulty affidavits. Lenders conducted reviews of their processes and have begun to correct the affidavits, but in February, Miller and several core offices participating in the investigation sent a proposal to the banks outlining a possible settlement. The terms included an end to pursuing a foreclosure while the borrower was being evaluated for a modification. Considering a borrower for a workout, including a principal reduction, would be mandatory before foreclosure as well, and a decision on modification must be made within 30 days of receiving documentation. But a consensus among the AGs has been elusive. The four signing the letter this week complained Miller and the other offices overstep their bounds. "Because of the term sheet’s vague principal reduction standards, some homeowners may simply default on their loan and use the States’ agreement to obtain a principal reduction— whether or not they actually made an effort to maintain their mortgage," according to the letter. The four AGs go further, saying the terms do not address the nature of the investigation. Modification proposals would not remedy the violations banks made, and while they admit the terms, many of which they do agree with, act as a starting point, some proposals should be scaled back, according to the letter. "In our view, the fifty-state working group has a unique opportunity to address the mortgage servicers’ legal and financial malfeasance on a national scale—but we are concerned that expanding beyond the scope of our already expansive charge may ultimately undermine the effectiveness of our law enforcement efforts," the letter reads. Write to Jon Prior. Follow him on Twitter @JonAPrior.