A bipartisan groups of attorneys general have been working on a settlement with the nation’s biggest banks over the foreclosure abuses that came to light several months ago, including the widespread use of “robo-signers.” The AG’s have been pushing for the banks to pay a monetary penalty — in the form of reducing loan principal for troubled borrowers — but eight Republican AG’s have broken with the group and sided with the banks, saying that they shouldn’t have to pay for their mortgage abuses. One Republican AG — Virginia’s Ken Cuccinelli — even derided principal reductions as “welfare.”
The Republican AG’s claim that principal reductions would create an incentive for borrower’s to default on their loans. As it turns out, according to a report today in Bloomberg, the Republican AG’s say this because it is exactly what banking lobbyists tell them to say:
Some of those attorneys general met yesterday in Atlanta to discuss the issue, said Adam Temple of the Republican State Leadership Committee. Bob Davis, an executive vice president with the American Bankers Association, spoke to the group in Atlanta, telling them principal reductions don’t work, he said in an interview. Loan balances must be reduced so much for borrowers struggling to make payments that it’s a better deal for lenders to foreclose instead, he said.
Dave Dayen pointed out that principal reductions are the most sustainable form of loan modification, while the IMF has said that banks can aggressively write down loans with “limited” effect on their balance sheets. As economist Paul Krugman explained, “the proposed settlement only calls for loan modifications that would produce a greater ‘net present value’ than foreclosure — that is, for offering deals that are in the interest of both homeowners and investors. The outrageous truth is that in many cases banks are blocking such mutually beneficial deals, so that they can continue to extract fees.”
Several of the eight AG’s who are pushing the bank line, in addition to receiving face to face briefings from bank lobbyists, had their campaign coffers filled in their last election cycle by the financial services industry*:
ATTORNEY GENERAL SCOTT PRUITT (R-OK): Pruitt received $115,000 from the finance/banking/real estate industry in 2010, his largest contributing industry, including $27,000 from securities and investment firms and $17,000 from commercial banks.
ATTORNEY GENERAL GREG ABBOT (R-TX): Abbot received more than $1 million from the finance industry, his largest contributing industry, including almost $185,000 from securities and investment firms and $225,000 from commercial banks and lending institutions.
ATTORNEY GENERAL KEN CUCCINELLI (R-VA): Cuccinelli received nearly $300,000 from the finance industry, his largest contributor after the Republican party, including $58,000 from securities and investment firms.
ATTORNEY GENERAL SAM OLENS (R-GA): Olens received $195,000 from the finance industry, his second largest contributing industry, including $17,000 from securities and investment firms and $35,000 from commercial banks.
ATTORNEY GENERAL PAM BONDI (R-FL): Bondi received nearly $300,000 from the finance industry, including $57,500 from securities and investment firms.
ATTORNEY GENERAL ALAN WILSON (R-SC): Wilson received almost $120,000 from the finance industry, his second largest contributing industry, including $11,350 from commercial banks.
ATTORNEY GENERAL JOHN BRUNING (R-NE): Bruning received almost $71,000 from the finance industry, including $12,540 from commercial banks.
ATTORNEY GENERAL LUTHER STRANGE (R-AL): Strange received almost $550,000 from the finance industry, his largest contributing industry, including $235,375 from securities and investment firms and $82,700 from commercial banks.
Republicans in Congress have also come out against the proposed settlement, falsely claiming that helping troubled homeowners would “impede” the economic recovery.
*Totals compiled by ThinkProgress using data from The National Institute on Money in State Politics. All totals are for the 2009 or 2010 election cycle.