March 7, 2011 (Chris Moore)
The nation’s largest mortgage lenders received a 27 page proposal from state attorneys general and several federal agencies that could require them to reduce loan balances of troubled mortgage borrowers. The proposal reportedly does not specify penalties or fines at this time, but instead represents a detailed code of conduct for how they must treat borrowers throughout the loan modification process.
The proposed code of conduct seeks “a binding legal requirement” for banks to first consider reducing loan balances of mortgage borrowers in certain instances before modifications or foreclosure.
According to Geoff Greenwood, a spokesman for Iowa Attorney General Tom Miller, “This is a document that sets a foundation for negotiations with the nation’s largest servicers.” Greenwood declined to identify the companies or say how many received the proposal, made by states and U.S. agencies including the Justice Department, Federal Trade Commission (FTC) and Department of Housing and Urban Development (HUD).
The states and federal agencies haven’t yet agreed on the monetary penalties they will seek from the companies, according to a person familiar with the matter who declined to be identified because the talks are private, however, reports last week from sources close to the Obama administration reported that fines could amount to over $20 billion. The government officials also are discussing a proposal for loan-modification procedures, the person said.
The FTC is also examining a “a variety of practices” among mortgage servicers, including whether they post payments on time and maintain accurate records, and methods they use to collect on defaulted debt.
The Office of the Comptroller of the Currency separately sent cease-and-desist orders to mortgage servicers, according to a person familiar with the matter. Bank of America, JPMorgan and Citigroup Inc. are among the eight national banks that are expected to get an enforcement document of some kind.
Negotiations with lenders over the final terms of an agreement are expected to begin next week, although it is not clear how long that might take. Some sources indicated an agreement might be reached fairly quickly.
Tags: mortgage lenders, mortgage servicers, state attoneys general, federal agencies, code of conduct, mortgage borrowers, monetary penalties, loan modifications