Iowa's attorney general said Monday it will be several months before a final deal is reached with five big U.S. banks on changing the system of foreclosures to compel lenders to modify more struggling homeowners' loans.
Iowa AG Tom Miller is a leader of the negotiations with the banks by the 50 state attorneys general and federal regulators. The talks began last fall after the state and U.S. officials launched an investigation of whether big banks cut corners and used flawed documents to foreclose on home borrowers. Public and lawmakers' anger flared over the disarray stemming from faulty foreclosure documents in the so-called "robo-signing" scandal.
"I'm hoping that we can wrap it up in a couple months," Miller said. He wouldn't discuss specifics of the proposals. Under draft terms submitted to the banks last week, they reportedly would be barred from starting foreclosure proceedings while homeowners are trying to modify the terms of their mortgages.
The lenders could be fined under the final agreement, or forced to write down the value of their loans to borrowers who owe more on their mortgages than their homes are worth. The banks are Bank of America, Citigroup, JPMorgan Chase, Wells Fargo and GMAC. Together they have 59 percent of all U.S. home mortgages, according to Miller.
Also under the draft terms, a lender's denial of a mortgage modification reportedly would trigger a review by an independent individual or panel..
"What we're really trying to do is to change a dysfunctional system," Miller said. ""We're hopeful that we can reach a resolution that will be good for homeowners, good for banks in the long run" and good for the country as a whole.
About 2 million U.S. households are in foreclosure proceedings. In addition, around 5 million borrowers are at least two months behind on their mortgages, and experts say more people will miss payments because of job losses and loans that exceed the value of the homes they are living in. Foreclosure listing firm RealtyTrac predicts 1.2 million homes will be repossessed this year.
Allowing struggling borrowers to stay in their homes longer could delay the recovery of the housing market by making potential buyers wary of purchasing homes in foreclosure, experts say. Experts contend that the housing market won't fully recover until banks find buyers for those properties.
The draft proposal is supported by the Treasury Department, the Justice Department, the Department of Housing and Urban Development, and the Federal Deposit Insurance Corp.
Revelations surfaced last fall of bank employees testifying in court cases that they signed, and in some cases backdated, thousands of certifying documents for home seizures. Financial companies that service a total $6.4 trillion in mortgages were involved.
Big banks say they have made changes in their foreclosure process to correct problems. They have maintained that most of the problem of flawed foreclosure documents was technical.
In a related development Monday, a Florida law firm that once handled tens of thousands of foreclosures annually said it is shutting down amid the nationwide investigation by state and federal officials. A regulatory filing by David Stern's law practice indicated that it will end operations on March 31. The firm, based in Plantation, Fla., once had more than 1,200 employees. It is one of several firms under investigation by Florida Attorney General Pam Bondi.