The Obama Administration has finally found something it can agree on with the nation’s big banks: The need for the 50 state attorneys general to finally reach a deal to end the year-long investigation into faulty mortgage foreclosure practices and reach a long-awaited settlement, the FOX Business Network has learned.
People at the big banks say the Obama Administration is prodding the state AGs, led by Iowa’s Tom Miller, to agree on a deal that is currently on the table that calls for fines and revised mortgage foreclosure practices -- but also limits banks' liability on legal action.
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Banking executives say if there has been any progress made in reaching a deal in the near future -- and there is wide disagreement among banks and regulators about how to define progress -- it’s because the Obama Administration has begun to side with the big banks and not some of the state AGs who want far greater fines and the ability to sue banks in the future.
“This may be the only thing that we have agreed on with the administration on in a long time,” said one senior banking executive with direct knowledge of the discussions.
This executive said that banking officials are hoping that the Obama Administration’s Justice Department will continue to apply pressure on the state AGs to agree on a deal when the two sides meet this Thursday and Friday in Washington.
Geoff Greenwood, a spokesman for Miller, told the FOX Business Network that “we’re certainly feeling pressure” to get a deal done since this Thursday will mark the one-year anniversary of the start of the investigation. He confirmed that the AGs will meet later this week with the Justice Department.
But Greenwood described the current state of the negotiations this way: “We’re inching closer…we’re hoping that we can do this by year end, but can’t say for sure. We have no set schedule.”
Senior executives at JP Morgan (NYSE:JPM), Bank of America (NYSE:BAC) and Citigroup (NYSE:C) -- the three largest banks involved in the probe -- are hoping that the meetings between the state AGs and the Justice Department will lead to a far quicker resolution, but they caution that over the past year an agreement appeared imminent several times only to be delayed because of competing agendas inside the group of AGs.
One problem with the administration’s role is that it doesn’t have the legal authority to press a settlement -- it can merely prod state AGs to accept the terms.
The deal in which financial executives say the Obama Administration, the banks and some AGs like Miller have broad agreement on goes something like this: Banks would pay around $20 billion comprised of fines, mortgage forgiveness, new compliance systems, and items like consumer education.
Under these terms, the banks will receive some assurance that there will be a limit to their legal exposure over what some believe are faulty foreclosure practices including so-called Robo Signings, where foreclosure documents were rubber stamped by low-level bank employees rather than by legally qualified staff.
One big problem: While Miller may agree to these terms, some other AGs so far haven’t. These AGs are complaining that the terms on the table aren’t tough enough on the banks. California is one of the biggest states where alleged faulty foreclosure practices have occurred, but the state’s AG, Kamala Harris, has given mixed signals whether she will sign on to any deal, after pulling out of the talks a couple of weeks ago.
It’s unclear if Harris will attend the meetings later in the week; her office didn’t return a call for comment.
Banks say they are being unfairly penalized because Robo Signing is basically a victimless crime; the vast majority of the people being foreclosed upon have been delinquent on their mortgages for a significant period of time.
One of the arguments the administration is using with some success is that the foreclosure investigation has prevented banks from removing people from their homes who can’t pay their mortgages, and as a result, the banks can’t sell foreclosed property to people who can afford mortgage payments.
With that, home prices have remained artificially high in many areas of the country, and without housing prices reflecting what people can afford the housing market cannot begin its long-awaited recovery.