Bloomberg News

Proposed Mortgage Deal Said to Be Limited to Foreclosures

January 31, 2012

(Updates with exclusions starting in third paragraph.)

Jan. 27 (Bloomberg) -- A proposed multistate settlement to resolve probes of flawed foreclosure practices won’t release banks from criminal liability, according to a person briefed on the talks.

Any final agreement will be narrowly focused to release banks from claims related only to documentation errors and other so-called robo-signing conduct, said the person, who declined to be identified because the talks are ongoing.

U.S. regulators including the Federal Deposit Insurance Corp., Federal Reserve, Securities and Exchange Commission, Consumer Financial Protection Bureau and Department of Housing and Urban Development would be free to pursue cases related to securities fraud, loan origination and other practices, the person said.

Banks wouldn’t be released from tax or fair-lending claims. They also wouldn’t be freed from liability related to Merscorp Inc., a registry for real estate deeds and liens that acts as a proxy for banks that pool and sell mortgages.

Claims by state pension funds, including those related to their purchases of mortgage-backed securities, also wouldn’t be affected by a final settlement, the person said.

Streamline Investigations

In a separate announcement today, U.S. Attorney General Eric Holder said a new multiagency mortgage unit will help streamline investigations into mortgage-backed securities and the subprime lending collapse.

Federal regulators and attorneys general from all 50 states have been investigating foreclosure practices for more than a year after the discovery that banks, faced with a flood of loan defaults, used flawed documents in seizing homes.

Attorneys general disagree over the scope of a final accord, which could be worth $25 billion in aid to homeowners if all states join in. Yesterday, California Attorney General Kamala Harris called the latest proposal “inadequate.”

Banks have used the robo-signing talks to push for a broader release of liability, including protection from claims related to the sale of mortgage-backed securities to investors including pension funds.

Under the draft agreement still being negotiated, banks would get credit for helping borrowers refinance into less- expensive loans and forgiving mortgage debt on homes that have fallen in value. Banks also would agree to improve their foreclosure practices.

Iowa Attorney General Tom Miller said in October that the settlement, under negotiation for since April, wouldn’t prevent state and local officials from pursuing other claims, including those related to packaging mortgages securities.

Harris and others, including New York Attorney General Eric Schneiderman, are conducting their own investigations into bank practices related to mortgage lending and securitization.

The nation’s largest mortgage lenders and servicers, including Bank of America Corp., JPMorgan Chase & Co., Citigroup Inc., Wells Fargo & Co. and Ally Financial Inc., are participating in the negotiations.

--With assistance from David McLaughlin in New York. Editors: Gregory Mott, Maura Reynolds

To contact the reporter on this story: Lorraine Woellert in Washington at lwoellert@bloomberg.net

To contact the editor responsible for this story: Maura Reynolds at mreynolds34@bloomberg.net


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