Bloomberg News

States With Highest Foreclosure Rates Among Bank Deal Holdouts

February 07, 2012

Feb. 7 (Bloomberg) -- California, New York, Nevada, Florida and Massachusetts are among the handful of states that haven’t signed a deal with banks over foreclosure abuses, according to state officials and two people familiar with the talks.

The holdouts include some with the highest rates of foreclosures. More than 6 percent of Nevada housing units had at least one foreclosure filing in 2011, giving it the nation’s highest foreclosure rate, according to RealtyTrac. California registered the third highest rate in 2011 with one in every 31 units having at least one foreclosure filing during the year, said the firm, which tracks foreclosures.

California Attorney General Kamala Harris and New York Attorney General Eric Schneiderman, who have been some of the most outspoken in pushing for changes to the deal, were among those who hadn’t joined as of yesterday’s deadline. More than 40 states signed on to the accord, according to Iowa Attorney General Tom Miller, who is helping to lead talks with the banks.

“Adding more numbers probably improves the political dimension of the settlement from the standpoint of the attorneys general,” said Ken Scott, a Stanford University law professor. “If you can say there were only a handful of diehards that didn’t sign on, that gives you some political protection.”

State Probe

All 50 states announced almost 16 months ago they were investigating bank foreclosure practices following disclosures that faulty documents were being used to seize homes. Officials from a group of state attorneys general offices and federal agencies, including the Justice Department, have since negotiated terms of a proposed settlement with five banks that is said to be worth as much as $25 billion.

Massachusetts Attorney General Martha Coakley and Florida Attorney General Pam Bondi haven’t signed on as of today, said the two people, who declined to be identified because the matter isn’t public. Delaware and Nevada also hadn’t agreed to the settlement as of yesterday, according to their offices.

Miller said federal and state officials continue to discuss the proposed deal and its terms with the banks.

“This enables us to move forward into the very final stages of remaining work,” Miller, a Democrat, said yesterday. He didn’t say which states have signed on and he declined to comment further.

Bank Accord

Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co. made a last-minute demand that New York drop claims filed against them Feb. 3 as a condition of the foreclosure settlement, a person familiar with that case said. The push by the three banks raised an obstacle in getting Schneiderman’s support for the deal, said the person.

New York sued Bank of America, JPMorgan and Wells Fargo in state court in Brooklyn, saying their use of a mortgage database known as MERS led to improper foreclosures. Schneiderman said the banks’ use of the Mortgage Electronic Registration Systems database misled homeowners, undermined foreclosure proceedings and created uncertainty about ownership interests in properties.

The banks have asked that many of the claims in the complaint be thrown out, said the person. The other two banks involved in the nationwide settlement proposal, Ally Financial Inc. and Citigroup Inc., weren’t named in the complaint.

Dani Lever, a spokeswoman for Schneiderman, declined to comment on the demand by the banks over the MERS lawsuit.

Bank Spokesmen

Mark Rodgers, a spokesman for New York-based Citigroup; Tom Goyda of San Francisco-based Wells Fargo; Tom Kelly, a spokesman at New York-based JPMorgan; and Gina Proia of Detroit-based Ally Financial declined to comment on the settlement condition.

“We’re interested in finding a path forward with a comprehensive settlement that benefits homeowners and communities,” said Dan Frahm, a spokesman for Charlotte, North Carolina-based Bank of America, declining to comment further.

The proposed settlement already requires Massachusetts, Nevada and Arizona to settle claims tied to suits they have filed against the banks, a person familiar with the talks said.

Nevada and Arizona each sued Bank of America over mortgage- servicing practices, accusing it of misleading consumers, while Massachusetts sued all five banks.

Nevada Attorney General Catherine Cortez Masto said in a statement she was reviewing the settlement and “advocating for improvements to address Nevada’s needs.”

‘Improvements’

Delaware Attorney General Beau Biden also said he was pushing for “improvements” and hasn’t signed the deal.

“Delaware’s timeline for agreeing to the settlement is dictated by whether our concerns are met,” Jason Miller, a spokesman for Biden, said in an e-mail.

Jenn Meale, a spokeswoman for Bondi, didn’t return a call seeking comment. Melissa Karpinsky, a spokeswoman for Massachusetts Attorney General Martha Coakley, declined comment.

Harris’s criticisms of the deal include terms that protect the banks from future litigation. Without Harris, the deal’s potential value will drop by several billion dollars, according to a person familiar with the negotiations.

“I’m less concerned with the timeline than the details,” Harris said in an e-mailed statement. “For the past 13 months we have been working for a resolution that brings real relief to the hardest-hit homeowners, is transparent about who benefits, and will ensure accountability. We are closer now than we’ve been before but we’re not there yet.”

Underwater Borrowers

The proposed nationwide settlement would set requirements for how the banks conduct foreclosures, provide mortgage refinancing for underwater borrowers -- people who owe more on their mortgages than their homes are worth -- and both fund loan principal reductions and make payments to states and borrowers who lost their homes to foreclosure.

The accord, which must be approved by a federal judge, will also allow banks to take steps toward resolving mortgage liability stemming from the housing bust. The releases may protect them from legal claims tied to foreclosures, mortgage- servicing and origination of loans.

“From the standpoint of the banks, what matters to them is not the number of states but the percentage of potential claims that are being settled,” meaning that getting states such as California is important, said Scott, the law professor. “So there’s a lot of last-minute political posturing for political advantage on one side, and on the other, for the banks, their concern is basically the valuation of what the settlement gets me and what it’s worth.”

Scope of Liability

The scope of the liability releases has been one of the biggest concerns for some attorneys general, including Harris and Schneiderman, who started separate probes of mortgage operations of banks.

Schneiderman said in an interview Jan. 27 that there were “outstanding issues” still to be resolved and declined to say whether he would sign the deal.

The liability releases wouldn’t prevent an investigation into mortgage securitization, he said. Schneiderman was named to a state-federal group that will probe the bundling of mortgage loans into securities in the run-up to the financial crisis.

At least three states announced before the deadline their intention to sign the settlement -- Connecticut, Oregon and Louisiana.

--With assistance from Margaret Cronin Fisk in Detroit and Dawn Kopecki in New York. Editors: Peter Blumberg, David E. Rovella

To contact the reporters on this story: David McLaughlin in New York at dmclaughlin9@bloomberg.net; Joel Rosenblatt in San Francisco at jrosenblatt@bloomberg.net

To contact the editors responsible for this story: John Pickering at jpickering@bloomberg.net; Michael Hytha at mhytha@bloomberg.net


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