More State AGs Speak Out Against Proposed Foreclosure Settlement

March 24, 2011 (Chris Moore)
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Last week we reported that Virginia Attorney General Kenneth Cuccinelli stated that his state was among “at least a dozen” that doesn’t back the Obama Administration’s proposed foreclosure settlement, now three more Republican Attorneys General have come forward and joined Cuccinelli expressing their displeasure with parts of the plan that they feel are too consumer friendly and could lead to more strategic defaults.

Florida Attorney General Pam Bondi, Texas Attorney General Greg Abbott, South Carolina Attorney General Alan Wilson, and Cuccinelli have sent a letter to Iowa Attorney General Tom Miller, who is leading the investigation, expressing their fears that homeowners would strategically default on their mortgages in order to take advantage of the consumer-friendly terms and that Miller and other participants in the proposal may be overstepping 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 proposal, sent to the large mortgage servicers in early March, is considered to be a draft from which both parties can begin negotiating. It outlines new requirements that servicers must follow in order to complete the foreclosure process on a property such as, an end to pursuing a foreclosure while a borrower is being evaluated for a loan modification and a buyer workout, such as considering a principal reduction, would be mandatory.

Also servicers would be required to provide one contact point for the entire foreclosure process and a decision on a modification must be made within 30 days of receiving documentation.

Although in the letter the Attorneys General agreed with many of the terms of the proposal, they felt that some of the terms should be scaled back and that modification proposals would not remedy the violations that the mortgage servicers made.

“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 Attorneys General wrote in the letter.

Tags: foreclosure settlement, Republican Attorneys General, strategic defaults, loan modification, mortgage modification, mortgage servicers, Tom Miller