April 7, 2011 (Chris Moore)
Differences in how to punish mortgage servicers has apparently split federal regulators and state attorneys general which has resulted in a watered down agreement between federal regulators and the mortgage servicers. The Federal Reserve, Office of the Comptroller of the Currency, Office of Thrift Supervision and Federal Deposit Insurance Corp. have signed consent agreements in negotitiations with some of the major mortgage servicers, which has included Bank of America, Wells Fargo, JPMorgan Chase and Citigroup, to take corrective actions with regard to the processing of foreclosures and loan modifications, according to sources familiar with the matter.
The split could further weaken any future agreement between the banks and the state attorneys general. This follows disagreements among the ranks of the state attorneys general as attorneys general from Oklahoma, Nebraska, Alabama, Virginia, Texas, Florida and South Carolina had already written a letter to Iowa Attorney General Tom Miller expressing their displeasure with the original draft proposal as being too harsh. Miller has been the lead AG in the pursuit of penalties against the states since the disclosure by mortgage servicers of paperwork discrepancies back in October.
Miller, in an April 4 statement, said he’s “disappointed” to see reports that some federal agencies may pursue their own accords. Miller said he had hoped the agencies would cooperate because “to work closely with all of us would protect the public interest to the fullest.”
On March 28, mortgage servicers had countered the government’s proposal with a draft proposal of their own which did not include principal write downs and fines that had been previously proposed by federal regulators and the state AGs.
The federal regulators and the AGs original draft proposal back in the beginnng of March would have forced mortgage servicers to write down mortgage principal and /or face fines of up to $20 billion. Responses to the proposal from the leaders of Bank of American and Wells Fargo were both negative, followed by House Republicans and some Republican AGs as being too harsh and “overstepping.”
Although at this time no financial penalties have been announced, federal regulators will have the ability to pursue penalties in the future. Sources note that the agreements are simply an effort to provide a set of rules to give near-term relief to borrowers trying to work out loan modifications or avoid foreclosures.
More to come.
Tags: mortgage services, federal regulators, state attorneys general, big 4, foreclosures, loan modifications, $20 billion penalties, overstepping, foreclosure settlement proposal, principal write downs