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, according to a March 5, 2011 article in The New York Times by Nelson D. Schwartz and David Streitfeld.
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, the article said, adding that "any borrower who successfully made three payments in a trial modification would be given a permanent modification" and "when a modification was denied, it would be automatically reviewed by an ombudsman or independent review panel."
The proposed changes would compel the banks to treat each borrower in default individually, the article said, adding that "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 blueprint from the attorneys general is still just a draft, and weeks, if not months, of tough negotiations with the banks remain, the article noting, adding that several big banks, including Citigroup, Bank of America and JPMorgan Chase, declined to comment.
The latest proposal, delivered to the banks late Thursday, represents an expansion of powers, the article continued, 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," the article said.
In addition to the attorneys general and the consumer bureau, the package is backed by the Department of Housing and Urban Development, Treasury, the Department of Justice, and the Federal Trade Commission.
If adopted in anything like its current form, the article said that the proposal would probably compel banks to hire many more customer service employees, or slow the foreclosure process even further.
About two million households are in foreclosure, and 2.2 million more are severely delinquent. Housing analysts have been waiting for these properties to make their way back onto the market, the article continued, "where they will swell available inventories and, at least initially, depress prices. Housing prices are already on the verge of falling through the floor established in the spring of 2009."
Giving some of these households loan modifications, allowing families to stay in their houses at least for a while, might help stabilize the market, the article said, "but it also might prolong the day of reckoning, shifting a housing recovery to 2013 or 2014."
The article said that "Banks would have to provide the agency with their formulas for determining if and when modifications would proceed, as well as quarterly reports on their internal procedures," adding that "Training documents and videos for employees at the servicing centers would have to be reviewed by the consumer bureau and the attorneys general, who would also appoint an independent monitor to examine the banks' compliance with any eventual settlement.
Among other provisions being proposed, the banks would have to reward their employees for pursing modifications over foreclosures, late fees would be curtailed, and a fund would compensate borrowers who were victims of banks' misconduct, while mortgage balances would be cut in "appropriate circumstances," the article said.
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, the article said, adding that "any borrower who successfully made three payments in a trial modification would be given a permanent modification" and "when a modification was denied, it would be automatically reviewed by an ombudsman or independent review panel."
The proposed changes would compel the banks to treat each borrower in default individually, the article said, adding that "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 blueprint from the attorneys general is still just a draft, and weeks, if not months, of tough negotiations with the banks remain, the article noting, adding that several big banks, including Citigroup, Bank of America and JPMorgan Chase, declined to comment.
The latest proposal, delivered to the banks late Thursday, represents an expansion of powers, the article continued, 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," the article said.
In addition to the attorneys general and the consumer bureau, the package is backed by the Department of Housing and Urban Development, Treasury, the Department of Justice, and the Federal Trade Commission.
If adopted in anything like its current form, the article said that the proposal would probably compel banks to hire many more customer service employees, or slow the foreclosure process even further.
About two million households are in foreclosure, and 2.2 million more are severely delinquent. Housing analysts have been waiting for these properties to make their way back onto the market, the article continued, "where they will swell available inventories and, at least initially, depress prices. Housing prices are already on the verge of falling through the floor established in the spring of 2009."
Giving some of these households loan modifications, allowing families to stay in their houses at least for a while, might help stabilize the market, the article said, "but it also might prolong the day of reckoning, shifting a housing recovery to 2013 or 2014."
The article said that "Banks would have to provide the agency with their formulas for determining if and when modifications would proceed, as well as quarterly reports on their internal procedures," adding that "Training documents and videos for employees at the servicing centers would have to be reviewed by the consumer bureau and the attorneys general, who would also appoint an independent monitor to examine the banks' compliance with any eventual settlement.
Among other provisions being proposed, the banks would have to reward their employees for pursing modifications over foreclosures, late fees would be curtailed, and a fund would compensate borrowers who were victims of banks' misconduct, while mortgage balances would be cut in "appropriate circumstances," the article said.
Architecture Critic
Carter Horsley
Since 1997, Carter B. Horsley has been the editorial director of CityRealty. He began his journalistic career at The New York Times in 1961 where he spent 26 years as a reporter specializing in real estate & architectural news. In 1987, he became the architecture critic and real estate editor of The New York Post.
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