(Updates with Connecticut attorney general’s comments starting in 13th paragraph.)
June 21 (Bloomberg) -- States may get to choose individually in a possible nationwide foreclosure settlement with U.S. banks how to use any money, including whether apply funds toward principal reductions for borrowers, Georgia Attorney General Sam Olens said.
Including those choices may broaden support for any accord among the attorneys general who oppose requiring banks to fund principal writedowns, Olens said in an interview. He estimated that as many as 20 of his colleagues are opponents.
“While one AG may want to use it for principal writedowns, other AGs may use it for different methodologies to assist their constituents,” Olens said yesterday at meeting of state top legal officers in Chicago.
Attorneys general and federal official are negotiating with the five largest mortgage servicers in the U.S., including Bank of America Corp. and JPMorgan Chase & Co., to set standards for servicing loans and conducting foreclosures. The AGs from all 50 states began investigating banks’ procedures last year.
State and federal officials in March proposed settlement terms that called for “a substantial portion” of monetary relief from the banks to fund loan modifications, including principal reductions.
At least eight attorneys general, including Olens, Texas Attorney General Greg Abbott and Florida’s Pam Bondi, have publicly opposed principal writedowns as part of any deal.
The March settlement proposal might discourage bank lending and destroy the housing market, Oklahoma Attorney General Scott Pruitt wrote to Iowa’s Tom Miller, a Democrat who is leading negotiations for the states. Olens, Abbott, Bondi and Pruitt are Republicans.
Geoff Greenwood, Miller’s spokesman, declined to comment on whether officials have discussed a structure that would give states the option of using money to fund principal writedowns.
“Principal reduction is on the table and what form it takes or what it will look like we don’t know because we’re still discussing it,” he said in a phone interview.
State and federal officials have proposed a national fund that would in part fund principal reductions, Greenwood said. Money would also be allocated to states, and they would have discretion for spending funds for “foreclosure-related purposes,” he said.
The proposal doesn’t specifically allow states to use the funds for writedowns or bar them from doing so, he said.
‘Work in Progress’
“It’s a work in progress,” Greenwood said.
Connecticut Attorney General George Jepsen who criticized Bank of America in a May 20 letter for “failing to devote adequate resources” to servicing loans in the state, is planning to meet with other banks about their mortgage-servicing operations, he said in an interview yesterday.
Jepsen said he has the same concerns about other major servicers that he has about Bank of America.
When asked if he may sue Bank of America, Jepsen said, “Everything’s on the table.” He wants to see what comes out of the national settlement negotiations, he said.
“We want the banks to commit the resources that will allow them to deal adequately with the current crisis,” he said. “It’s hard to see how the national banks can do what needs to be done without a commitment of money, staff and a set of best practices.”
Bank of America
In response to Jepsen’s letter, Bank of America spokesman T.J. Crawford in May said the bank would continue to work with the attorney general to address his concerns. Since January 2009, the bank has expanded staffing in default servicing threefold, he said in an email.
In an interview at the Chicago meeting, Iowa’s Miller declined to comment about details of the negotiations with the banks. Besides Bank of America and JPMorgan, state and federal officials are also negotiating with Wells Fargo & Co., Citigroup Inc. and Ally Financial Inc.
Miller said he hopes principal reduction will be part of any settlement.
“It’s important to take the time necessary to get the agreement right,” he said. “I think there’s a meaningful chance we will reach an agreement that’s good for the homeowner and good for the housing market.”
Olens said requiring banks to fund principal reductions will prompt some borrowers who are otherwise capable of meeting their loan obligations to stop making payments while waiting for “the panacea,” he said.
“It’s got to be done fairly,” Olens said, acknowledging that many borrowers lost equity in their homes during the recession. “My house lost 20 percent. I’m not immune.”
--Editors: Mary Romano, Michael Hytha
To contact the reporters on this story: Andrew Harris in Chicago at firstname.lastname@example.org; David McLaughlin in Chicago at email@example.com.
To contact the editor responsible for this story: Michael Hytha at firstname.lastname@example.org