WASHINGTON – Efforts to reach a settlement that would end the long-running probe of foreclosure practices are snagged over whether banks will get broad legal immunity from state officials for mortgage-related claims.
American Banker, an affiliate of Credit Union Journal, reported federal and state officials are seeking penalties of $20 billion to $25 billion from Bank of America Corp., J.P. Morgan Chase & Co. and other financial firms under investigation since last fall. The banks are pushing hard for a deal, but they have insisted on a wide-ranging legal release from state attorneys general.
“They wanted to be released from everything, including original sin,” a U.S. official involved in the discussions told American Banker. The legal protection sought by the banks included loan origination; securitization and servicing practices; fair-lending procedures; and their use of the Mortgage Electronic Registration Systems, an industry-owned loan registry that often acts as an agent for owners of mortgage loans, people familiar with the discussions said.
“The reason the banks would settle or pay anywhere near $20 billion to $25 billion is to get this behind them,” said one person familiar with the banks’ thinking. “There’s no reason the banks would pay that amount of money and leave their flank exposed.”
U.S. and state officials dismissed the push for broad immunity as a "nonstarter," according to a federal official involved in the talks, but they have countered with a narrower offer. It would cover robo-signing and other servicer-related conduct but leave banks open to potential legal action for wrongdoing in fair lending and securitization, according to people familiar with the situation. Attorneys general in California, Delaware, Massachusetts and New York have said they are investigating mortgage-securitization practices.
Federal officials are aiming for a settlement by Labor Day, with some insisting that making a deal soon would give the housing market a much-needed boost and avoid the risk of a protracted legal showdown with the banks. The foreclosure machine has been sputtering since the issue came to the fore last fall, though banks insist their procedures resulted in few or no wrongful foreclosures.
