States Negotiate Settlement with Five of the Nation's Largest Mortgage Banks
Last year, 50 attorneys general, led by Iowa attorney general Thomas Miller, initiated an investigation into the foreclosure practices by five major lenders. At the time the investigations began, it was widely expected that these major lenders will be the first to negotiate settlement agreements with the states and these settlement agreements will likely set the framework for all agreements that follow.
Mortgage servicers came under fire for alleged abuses of the foreclosure process. These alleged abuses ranged from fraudulent documentation to the failure to review loan papers adequately before execution, thereby causing a multitude of technical problems. The Attorneys’ General investigation and subsequent settlements may force lenders and servicers to agree to mass loan modifications, principal forgiveness schemes or other remedial measures. These settlements also may include financial penalties or changes in mortgage servicing practices. For example, in 2008, one financial institution settled charges in 2008 brought by 15 attorneys general relating to accusations of predatory lending. This settlement included granting loan modifications worth $8.4 billion to thousands of homeowners.
As recently as December 2010, the U.S. Securities and Exchange Commission expanded its investigation into the mortgage industry by issuing subpoenas to the major lenders to recover information on their home loan securitization process. These subpoenas were issued immediately after Nevada and Arizona filed parallel lawsuits accusing a financial institution of deceptive foreclosure and loan modification procedures.
We will continue to monitor these proposed State Attorneys General investigations and settlements and circulate notice of any developments. In the interim, please do not hesitate to contact Ashley Taylor or John Lynch if you have questions.