Mortgage giants Bank of America, J.P. Morgan Chase, Wells Fargo & Co., Citigroup Inc. and Ally Financial Inc. are balking at an offer by state officials to ease their blame for alleged wrongful mortgage practices in return for a multibillion-dollar payment.
Bank officials believe the latest attorneys general proposal over robo-signing and other questionable mortgage practices is a "non-starter" because it does not release the banks from all future liability for past mortgage practices and mortgage-backed securities they sold to investors, according to the Financial Times, which relied on "people with direct knowledge of the discussions."
Robo-signing occurs when employees sign foreclosure documents en masse without reviewing them, as required by law. The documents are used to prove banks have a right to foreclose if a homeowner isn't making mortgage payments. The scandal led the lenders in negotiations with attorneys general to temporarily halt foreclosures nationwide last fall.
The banks' immunity demand comes as some attorneys general cite that the negotiations, involving a proposed total $20 billion to $25 billion penalty payment, already offer the banks far too broad a release from liability, the Financial Times said.
Last week, American Banker, a Collections & Credit Risk sister publication, reported that as recently as August banks such as Bank of America., Wells Fargo, Ally Financial, and OneWest Financial were essentially backdating paperwork necessary to support their right to foreclose.
The talks between banks and the attorneys general continue this week and will include discussions about releasing the banks from legal liability for wrongful securitization practices.
Securitization involves pooling unrelated residential and commercial mortgages, and sometimes adding pooled auto loans and credit card debt, and selling the debt as bonds and other securities to investors. The practice produced billions of dollars of profits for banks but eventual investor losses in the tens of billions. Te attorneys general of New York, Delaware, Massachusetts and Nevada are probing securitization matters and have told the 46 other states in the talks they don't agree with this part of the proposal.
Some state officials, however, say that cleaning the slate with banks can help heal the housing market and secure fresh debt relief for distressed homeowners.
