Consumer Advocacy Group Weighs in on AG Settlement

Rumors have been circulating for some time that the Obama Administration is pressuring the 50 state attorneys general, the Justice Department and the Department of Housing and Urban Development to settle with major banks over issues relating to errors in servicing and foreclosure abuses including the robo-signing uproar.  The settlement has been controversial and several attorneys general including those in California, Delaware, and New York have opted out of the settlement and/or launched independent lawsuits of their own, claiming the settlement is not sufficient to the offense.  The rumors have intensified over the last few days based on a theory that the President hopes to announce the settlement during his State of the Union Address tonight.

Today the Center for Responsible Lending which has been an early and outspoken critic of mortgage lending came out in favor of the settlement saying, while it isn't perfect, it would represent an important step forward in addressing foreclosure abuses.  "The settlement would include key reforms to clean up unfair mortgage servicing practices," the statement from the Center said.  "It would also provide an important template for ways banks can use principal reduction to reduce unnecessary foreclosures and put the country back on a path to economic recovery."

While the Center admits that not all details of the settlement are available as yet, but based on current information, the key reforms include:

• The elimination of robo-signing as banks would agree to individually review foreclosure documents according to the law.
• Adoption of practices that would improve communication with services and end servicer abuses including fairer treatment for homeowners who are late on mortgage payments.
• More sustainable loan modifications including a requirement that banks "get serious" about reducing principal balances.
• While the state AGs would be prohibited by the settlement from pursuing further actions against the banks, the Center said that nothing in the settlement would prevent homeowners from suing on an individual basis nor would the settlement shield the banks from prosecution for criminal activities or from claims based on mortgage securities violations, fair lending suits or claims against the Mortgage Electronic Registration System.
• The settlement would be enforceable in court by an independent monitor.

The Center said that its research indicates that the country is only about half-way through the mortgage crisis, but the proposed settlement would wrap up a year-long investigation into robo-signing and other abuses and is "crucial to containing the damaging effects of foreclosures on our economy."  It stresses, however, that additional policy actions on multiple fronts is a necessary addition to the settlement.