Bloomberg News

Mortgage Accord Has More Than 40 States Signed On, Iowa Says

February 14, 2012

(Updates with Miller’s comment in second paragraph.)

Feb. 6 (Bloomberg) -- More than 40 states have signed on to a settlement over mortgage-servicing practices as federal and state officials continue to discuss matters with the five banks involved in the talks, Iowa’s attorney general said.

“This enables us to move forward into the very final stages of remaining work,” Iowa Attorney General Tom Miller said in a statement today, which was the deadline for states to participate in the agreement. Miller, a Democrat, has been helping to lead negotiations on behalf of the states.

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 the five banks, the nation’s largest mortgage servicers.

Miller didn’t say which states have signed on and he declined to comment further.

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 a $25 billion nationwide settlement over foreclosure abuses, a person familiar with the matter said.

New Obstacles

The push by the three banks raised a new obstacle in getting New York Attorney General Eric Schneiderman’s support for the deal, said the person. Schneiderman, along with the attorneys general of California, Nevada and Delaware, has voiced concerns about the terms of the accord.

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. Other banks involved in the nationwide settlement proposal, Ally Financial Inc. and Citigroup Inc., weren’t named in the complaint.

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.

‘Path Forward’

“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 further comment.

The proposed settlement already requires Massachusetts, Nevada and Arizona, which have sued banks involved in the talks, to settle their claims, a person familiar with them said.

Nevada and Arizona each sued Bank of America over mortgage- servicing practices, accusing it of misleading consumers, while Massachusetts sued all five banks. Dani Lever, a spokeswoman for Schneiderman, declined to comment.

Other states have yet to decide whether to join the national settlement.

Nevada Attorney General Catherine Cortez Masto said today she wouldn’t decide whether to sign in time for the deadline, which was extended by the parties from Feb. 3.

‘Nevada Needs’

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

Delaware Attorney General Beau Biden also said today that he was still pushing for “improvements.”

“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.

California Attorney General Kamala Harris has yet to publicly commit to the deal in part due to terms that protect the banks from future litigation. Without Harris, the deal’s potential value will drop by several billion dollars, according to another person familiar with the talks.

“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.”

The proposed nationwide settlement would set requirements for how the banks conduct foreclosures, provide mortgage refinancings 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 protect them from legal claims tied to foreclosures, mortgage-servicing and origination of loans, said another person familiar with the deal.

The deal wouldn’t take away any individual’s right to pursue an individual or class action case, a third person said. All three declined to be identified because the talks are private.

The scope of the liability releases has been one of the biggest concerns for some attorneys general, including Harris and Schneiderman, who started a separate probe 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 have announced their intention to sign the settlement -- Connecticut, Oregon and Louisiana.

--Editor: Peter Blumberg

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