In what one negotiator called an “unprecedented” cooperative action between state attorneys general and federal agencies, government officials this week proposed a settlement of a long-standing investigation into fraud and mishandling of documents by mortgage servicers. Under the proposal, big banks would pay up to $25 billion in penalties and agree to alter how they go about home foreclosures, giving homeowners more opportunities to stay in their houses while they work out a payment method for reduced mortgage obligations.
But the banks are already resisting the deal, which was proffered Thursday night. “The negotiations haven’t begun,” said one member of the attorney general team. Both he and a federal regulator involved in putting together the proposal said the attorneys general were driving the deal.
Still, the proposed settlement is a test case for the new Consumer Financial Protection Bureau being set up by a controversial Harvard law professor, Elizabeth Warren, who is quickly becoming a target of the bank lobby and House Republicans seeking to undermine the Dodd-Frank financial regulatory law passed last summer.
Warren has been fully engaged in putting together the proposal, which has been resisted by other agencies in the federal government, especially the Office of the Comptroller of the Currency. But despite that resistance, the member of the attorney general team said there was widespread support in state and federal agencies for the deal. “It’s wide-ranging. There is a partnership with state banking examiners, the Department of Justice, Housing and Urban Development, and the FDIC.”
The proposal seeks to go to the heart of the "robo-signing" controversy, in which documentation on the transfer of mortgages went missing or was fraudulently supplied during the subprime bubble, by requiring banks to address foreclosures on a case-by-case basis.