A cadre of state attorneys general — led by Iowa Attorney General Tom Miller (D) — have been negotiating a settlement with the nation’s biggest banks over the foreclosure fraud scandal that came to light several months ago. By settling, the banks would avoid litigating over widespread allegations of fraudulent documents and improper foreclosure procedures (including the infamous use of “robo-signers“).
While the attorneys general and the federal bank regulators — including the Office of the Comptroller of the Currency (OCC) and the Federal Reserve — were seemingly united in these talks at the beginning, the regulators broke off and have come to their own settlement with the banks. And as CAP Housing Policy Adviser Alon Cohen notes, the regulators’ settlement is a weak one:
There is no mention of penalties, and the servicers’ repeated focus on “processes” is replaced by the terms “policies and procedures” and “internal controls,” nearly all of which presumably should already be in place. While the AG settlement required oversight by a third party monitor appointed by the AGs and the new Consumer Financial Protection Bureau, the federal regulators permit the servicer to hire its own monitor with regulator approval…To believe that the terms of the federal consent orders will change how servicers operate would mean placing our faith in the same regulators who have monitored and been on site at banks throughout this crisis.
As The Atlantic’s Daniel Indiviglio put it, the regulators made an “attempt to ensure that foreclosures are processed accurately and fairly in the future, but they fail to penalize banks and servicers for any wrongdoing that may have occurred in the past.” The regulators said that they will come back later to assess monetary fines.
This isn’t necessarily the end of the process, as the AG’s insist they are still moving forward, but there’s a chance that any real reform in foreclosure practices that the AG’s get into an agreement could be pre-empted by the deal struck by federal regulators. Several Republican attorneys general have also broken away from the settlement talks, saying that banks shouldn’t have to pay for their role in the foreclosure crisis.