Bloomberg News

Foreclosure Deal Shouldn’t Waive All Claims, Official Says

September 13, 2011

(Updates with Iowa attorney general spokesman’s comments in eighth, ninth paragraphs.)

Sept. 13 (Bloomberg) -- Banks shouldn’t be protected from liability for mortgage securitization as part of a national foreclosure settlement, said Minnesota’s attorney general, joining other states voicing concern over the issue.

Any settlement shouldn’t release the banks from liability for the bundling of mortgages into securities or for the use of a mortgage registry known as MERS, Attorney General Lori Swanson said in a Sept. 9 letter obtained by Bloomberg News.

“The banks should not be released from liability for conduct that has not been investigated and is not appropriately remedied in any settlement,” Swanson wrote to her counterparts in New York and Iowa.

State and federal officials are negotiating a settlement with the five largest mortgage servicers in the U.S., including Bank of America Corp. and JPMorgan Chase & Co. All 50 states announced an investigation into bank foreclosure practices last year.

Government officials are seeking an agreement that provides funding for writedowns on mortgage loans for borrowers and sets standards for how the banks service loans, interact with borrowers and conduct foreclosures, according to terms proposed in March.

Criticized Releases

Some attorneys general have criticized any agreement that would provide the banks with releases for certain claims, such as securitization, and protect the companies from state investigations.

“We have received Attorney General Swanson’s letter and agree that any agreement must not prevent attorneys general investigating the mortgage crisis from following the facts wherever they lead,” Danny Kanner, a spokesman for New York Attorney General Eric Schneiderman, said in an e-mail today.

State officials negotiating the settlement with the banks don’t intend to release securitization claims, Geoff Greenwood, a spokesman for Iowa Attorney General Tom Miller, said in an interview. Miller, a Democrat, is leading talks for the states. The liability releases are being negotiated, said Greenwood, who declined to comment about whether claims related to the MERS database would be released.

“We share a lot of common ground with Attorney General Swanson, and we appreciate her input,” Greenwood said.

Speaking Out

Besides Schneiderman and Swanson, other attorneys general who have spoken out about liability releases are Martha Coakley of Massachusetts, Delaware’s Beau Biden, and Catherine Cortez Masto of Nevada.

Coakley, a Democrat, has said she won’t sign on to an agreement that includes a release for securitization and conduct linked to MERS. Masto, a Democrat who is suing Bank of America, said she would be “very cautious” about agreeing to releases that would hinder her ability to pursue civil or criminal investigations.

Biden and Schneiderman, both Democrats, are probing mortgage securitization practices. In an interview in July, Biden said the 50-state investigation is focused on the mortgage-servicing practices of banks and that he would have “real reservations” about waiving claims beyond servicing. Doing so would hinder his investigations, he said.

FHFA Suits

In her letter, Swanson commended actions by individual attorneys general and lawsuits against banks filed by the Federal Housing Finance Agency over losses on mortgage-backed securities sold to Fannie Mae and Freddie Mac.

“We should fully welcome and support all legitimate efforts to investigate the banks and to hold them accountable for their unlawful activity, which has been enormously destructive to this country and our citizens,” wrote Swanson, a Democrat.

Benjamin Wogsland, a Swanson spokesman, confirmed that the attorney general wrote the letter to Schneiderman, Miller and Thomas Perrelli, an associate attorney general at the U.S. Justice Department. He didn’t immediately comment about whether the office had seen proposed language for releasing claims.

--With assistance from Karen Freifeld in New York. Editors: Fred Strasser, Andrew Dunn

To contact the reporter on this story: David McLaughlin in New York at dmclaughlin9@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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