Deadline Day for the Multistate Foreclosure Settlement
February 6, 2012
Today, Monday February 6, is the deadline for states to sign on to the multistate robo-signing settlement. Those who have followed the negotiations have good reason to scoff at the term “deadline” in the context of these conversations, though. Whether today will be another opportunity for state attorneys general, federal officials and the five major banks to continue their 15-month tango or the settlement will be announced remains to be seen.
The penalties for Wells Fargo, Bank of America, JP Morgan Chase, Citigroup and Ally Financial depend on which states participate in the settlement, which also includes federal agencies. Key to the settlement is California’s Kamala Harris, a Democrat who walked away from talks four months ago and has reportedly returned to the table in exchange for a commitment of a solid dollar amount from the banks, according to the New York Times. Harris confirmed her renewed interest in a statement released Sunday night.
California has a powerful bargaining chip – with the most foreclosures in the country, banks are eager to get the Golden State in the mix, as are federal officials hoping to demonstrate the comprehensiveness of the deal. Indeed, California’s inclusion would significantly increase the settlement amount. The deal would switch from $19 billion to $25 billion if California signed on, meaning other states could get a larger chunk of change.
However, the Wall Street Journal has reported that California’s special treatment has left other state AGs, namely Pam Bondi of Florida, feeling disgruntled. Should Harris return as the prodigal politico of the negotiations, she would do so after receiving incentives that haven’t been offered to other state AGs. The Republican Bondi, WSJ noted, could influence other Republican AGs to walk away from the deal if they feel unfairly treated.
Another state AG receiving a large share of the headlines, if not the settlement, is New York’s Eric Schneiderman, also a Democrat. Now the co-chair of the new RMBS working group, Schneiderman filed suit against Wells Fargo, Bank of America and JP Morgan Chase for their use of the Mortgage Electronic Registration System (MERS) late last week.
While we at the IMF offices were buzzing on Friday that the suit signaled Schneiderman’s distaste for the multistate agreement, it is not clear whether the lawsuit, which alleges the banks committed “a wide range of deceptive and fraudulent foreclosure filings in New York state and federal courts, harming homeowners and undermining the integrity of the judicial foreclosure process,” is necessarily incompatible with the settlement. Inquiries to the NY AG press office have not yet been returned.
Currently, the multistate has significantly narrowed the release of liability afforded to the banks, so that the settlement only covers robo-signing. The $25 billion in penalties, the number most commonly used, would have $17 billion going towards principal reductions and $5 billion for a reserve account that would be used to pay $1,800 checks to homeowners affected by banks’ deceptive foreclosure practices. Another $2 billion to $3 billion would be used to help homeowners refinance.
Meanwhile, Financial Times reported today that the banks could ultimately pay $40 billion to the states in principal reductions alone. Until an agreement is reached, we won’t know for sure.
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