Five of the nation's largest banks have outlined their plans to resolve a nationwide investigation of mortgage-servicing practices.
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According to The Wall Street Journal, the banks sent government officials a proposal Monday discussing standards they would follow as a part of settlement abuses in the real estate industry. The proposal was sent in response to a term sheet state attorneys general sent to the banks earlier this month, which would require them to consider reducing mortgage principles for borrowers under water. The government talked of a settlement sum in the range of $20 billion, but according to the Journal, the document the banks drew up doesn't include any discussion of principle reductions or a potential sum that banks could pay for borrower relief or penalties. Bank leaders are meeting with government officials on Capitol Hill Wednesday to address the matter.
Matt Englett, managing partner at KEL Attorneys, said although it isn't likely, he is hopeful the two sides will resolve the settlement terms swiftly. This way a full-blow litigation process can be avoided.
"As consumer advocates, we want a process set up where every single person in jeopardy can go through some type of set procedure to be quickly vetted for a loan modification, to see if they qualify," Englett said, "so that we can keep the people that can afford to stay in their homes, in their homes."
The banks' draft proposal included an outline for "borrower portal" that would allow customers to check the status of their loan modifications online, as well as a third-party review of foreclosures and a single point of contact for troubled borrowers.
The government proposal for $20 billion in principle reductions is nowhere near where it needs to be to actually help those in foreclosure, Englett said. The sum would have to be four-to-five times the amount being discussed in order to offer real relief. The $20 billion would leave people with between $6,000 and $10,000 in principle reductions.
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"This is one aspect of things that is very controversial," he said. "Everyone is missing the boat on that. If you extrapolate that number over the number of people who would qualify for that, it’s not enough to keep them in the game. If you are under water with your mortgage, it’s not enough to keep you in the game."