Nelson D. Schwartz and David Streitfeld, NY Times
State attorneys general have presented the nation’s five biggest banks with a list of demands that could drastically alter the foreclosure process and give the government sweeping authority over how mortgage servicers deal with millions of Americans in danger of losing their homes.
Under the blueprint, banks would be prohibited from starting foreclosure proceedings while a borrower was actively trying to lower the interest rate or ease other terms of the home loan, a process known as a mortgage modification.
Any borrower who successfully made three payments in a trial modification would be given a permanent modification. When a modification was denied, it would be automatically reviewed by an ombudsman or independent review panel.
The proposed changes, which will be discussed by the attorneys general when they meet in Washington early next week, would compel the banks to treat each borrower in default individually.
It was the banks’ attempt to process foreclosures on a large scale that led to robo-signing, in which lawyers and bank officials signed thousands of documents a month after only a cursory review.
The ensuing furor over robo-signing, and other abuses like foreclosures that proceeded with missing documentation, prompted the attorneys general and regulators to begin a broad investigation last fall.
The blueprint from the attorneys general, obtained by The New York Times, is still just a draft, and weeks, if not months, of tough negotiations with the banks remain. Several big banks, including Citigroup, Bank of America and JPMorgan Chase, declined to comment.
The government’s current program to help troubled home borrowers, known as HAMP, continues to face fierce criticism. Both conservatives and liberals have found fault with the program, which aided far fewer homeowners than originally promised.
The latest proposal, delivered to the banks late Thursday, represents a significant expansion of powers for the newly created Consumer Financial Protection Bureau, which government officials say has taken a more aggressive stance in the talks than some other banking regulators.
The big banks are already wary of the new bureau and its overseer, Elizabeth Warren, a former Harvard law professor who has been sharply critical of the financial services industry and has pushed for a separate financial penalty of $20 billion or more.
“This further cements the C.F.P.B.’s authority in the financial space and puts them at the top of the pyramid when it comes to the mortgage modification fight,” said Jaret Seiberg, a policy analyst at MF Global in Washington. “From the perspective of the banks, this is the last place you want to be.”
