Attorneys General Skeptical On Bank Settlement

While the five largest banks have agreed to overhaul their mortgage lending practices and pay $25 billion as part of a settlement agreement over deceptive practices, some state attorneys general have balked at the proposed deal, despite political pressure from the White House to sign on, according to the Associated Press. Support from the attorneys general will be crucial, however, as it is up to individual states to decide whether they will adopt the settlement, the draft of which was sent out by the White House this week, as opposed to pursuing their own lawsuits and investigations, many of which are pending at the state level, according to the Los Angeles Times.

The deal was crafted in response to improper practices in mortgage lending and home foreclosure on the part of banks, including so-called “robo-signing” where single employees would approve countless foreclosures on an almost automatic basis after giving just a cursory glance at the paperwork to make sure everything was in order, according to MarketWatch. The deal pertains to the five largest banks in the nation, Bank of America, JP Morgan Chase, Citigroup, Wells Fargo and Ally Financial, which utilized these practices during the height of the financial crisis, continued MarketWatch.

The proposed settlement, the draft agreement of which was sent to the states this week, would use the $25 billion from the banks primarily for mortgage relief, according to the New York Times. Of this sum, $750 million would go to the federal government and about $2.8 billion would go to states to use toward their individual mortgage assistance programs, including mediation assistance, housing counseling and mortgage help hotlines, said MarketWatch. Another $1.5 billion would go toward a fund that would provide aid to borrowers affected by the abuses that sparked the settlement to begin with, $3 billion would go toward helping underwater homeowners refinance their mortgages, while another $17 billion would be put toward programs that reduce the principal owed on various mortgages, continued MarketWatch. This would result in about 1 million homeowners facing foreclosure having their mortgages cut by about $20,000 each, according to CBS.

In exchange, the banks have asked for a broad release from future civil claims, continued the New York Times. They would also get up to $17 billion in credit through meeting certain targets in terms of borrowers assisted and reducing principle on a loan in their portfolios, according to MarketWatch.

While state attorneys general have argued that the sum sought by the settlement is not big enough, the main objection from critics, including New York Attorney General Eric Schneiderman and Massachusetts Attorney General Martha Coakley, is that the deal is too easy on the banks, with a promise of immunity from future civil claims potentially interfering with individual state efforts to perform their own investigations and prosecutions, said the New York Times. Delaware’s attorney general, Beau Biden, has already said that his state will not sign onto the proposed settlement as drafted and while he declined to give Bloomberg reasons why, he has said in the past that he opposes any deal that protects banks from claims that have yet to be fully investigated. On the other hand, Republicans have called the proposed settlement a “shakedown” according to the Wall Street Journal.

This is only a tentative agreement. The total value of the settlement will vary based on how many states ultimately sign on to it, according to the New York Times.