Four Republican state attorneys general oppose forcing banks to reduce the value of loans for troubled homeowners as part of a state-led mortgage-servicing settlement proposal.
Kenneth Cuccinelli of Virgina, Greg Abbott of Texas, Pam Bondi of Florida and Alan Wilson of South Carolina on Tuesday notified Iowa Attorney General Tom Miller, a Democrat spearheading the 50-state effort, about their opposition.
Several state attorneys general and federal agencies earlier this month sent proposed rules to banks designed to reshape the way mortgage servicers deal with troubled borrowers, a response to the foreclosure-document problems that gained public attention last fall. State officials allege that mortgage companies broke state laws when handling foreclosures.
Officials have been discussing financial penalties as part of a proposal to settle those allegations, including fines or rules for banks to write down more than $20 billion in loan balances for homeowner borrowers that owe more on their properties than their homes are worth.
But the Republican attorneys general balked at that idea. In their letter to Iowa Attorney General Miller, they argue that loan assistance is largely unrelated to the foreclosure-document issue.
"We believe that the states' settlement proposal should focus on the alleged misconduct that prompted our investigation," they wrote. "To the extent loan modification proposals should be included at all, they should be limited in scope and only address unlawful conduct at issue in this investigation -- such as banks' improper handling of loan modification applications."
The attorneys general, however, suggested they support other reforms that could be mandated in a settlement, and wrote that they were troubled by revelations of wrongful practices in the mortgage-servicing industry, including the use of "robo-signers" who signed documents without personally verifying their content. They also expressed concerns about banks' failure to provide proper documentation when foreclosing on homeowners.
"The states are poised to address unacceptable and unlawful practices that were widespread within the nation's largest mortgage servicers," they wrote.
