Attorneys General Quarrel Over Improper Foreclosure Settlement

Banks Are to Be Held Accountable, But for How Much?

by Lee Avery on August 24, 2011

Squabbling among state attorneys general has created delays in a settlement between states and mortgage lenders over improper foreclosures. Meanwhile, the victims of these foreclosures wait in the wings, or perhaps more specifically, somewhere other than their home. The main reason for the fighting has been over differing opinions on how much accountability the mortgagers should face.

The case is constructed thusly: federal agencies, like the Federal Trade Commission and the new Consumer Finance Bureau, and attorneys general against the nation’s five largest mortgage servicers. The group of Ally Financial, Bank of America, Citigroup, J.P. Morgan Chase, and Wells Fargo is responsible for over 60 percent of the mortgage market.

The attorneys general from states like Delaware, Massachusetts, and New York, which have tough laws governing fraud, are reticent to allow a future amnesty for banks after the settlement. The other side of the table has argued that the settlement proposal is already too tough on banks. On August 23^rd, Iowa Attorney General Tom Miller actually kicked his New York counterpart, Eric Schneiderman, from a meeting of attorneys general. He reportedly accused Scheiderman of “working to actively undermine” the pending settlement.

While statements regarding the incident have not been forthcoming from Scheiderman’s office, it is safe to assume he is adamant about not conceding immunity to banks over future lawsuits. Schneiderman recently issued a move to deny an $8.5 billion settlement in his own state over a lawsuit against Bank of America and Bank of New York. His reasons for doing so were stated to be the fact that the proposed deal was “unfair and inadequate” according to court records.

The current case brought against mortgage lenders involves improper foreclosure proceedings by banks. In many cases, modifications to the mortgages to make payments more affordable for homeowners were not made when states feel that they should have been.

One example of this came about when mortgages conduct foreclosure proceedings while the homeowners are still in the loan modification process. This causes foreclosure alerts to be sent to people when they are actively attempting to make their mortgages payable.

The ongoing lawsuit has prompted many of the mortgage lenders to halt all proceedings on foreclosures for the time being. While this is good news for those who want to remain living in their foreclosed homes, it could cause a flood of foreclosed homes entering the market later, prompting another drop in home values throughout the market.

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