Matt Stoller uncovers a confidential plan by banks to keep themselves off the hook on foreclosures. **You can follow Matt Stoller on Twitter at http://www.twitter.com/matthewstoller
I happened to come upon the bank offer to the Attorney General (attached below), which is a response to the original 27 page "settlement" offer from Iowa Attorney General Tom Miller. The banks are obviously opposed to any real financial responsibility for fixing the foreclosure process and mortgage servicing industry. It will cost them money. This document confirms as much, but it also unwittingly reveals a big fear of the banks.
One of the most important elements from a homeowner's perspective is that the servicers often don't tell them what they owe. This draft addresses the problem, by requiring servicers to tell borrowers every month the "total amount due, allocation of payments, unpaid principal, listing of fees and charges, current escrow balances, and the reason for any payment changes". That sounds good, right? Well, just read the very next part:
Monthly statements as described above are not required with respect to any fixed rate residential mortgage loan as to which the borrower is provided a coupon book.
That's the basic template of their offer -- the bankers lay out a bunch of reasonable requirements, and then give themselves an obvious loophole.
Here's another part of the settlement.
Servicer shall implement processes reasonably designed to ensure that factual assertions made in pleadings, declarations, affidavits, or other sworn statements filed by or on behalf of the Servicer are accurate and complete; and that affidavits and declarations are based on personal knowledge or a review of Servicer's books and records when the affidavit or declaration so states, or in accordance with the evidentiary requirements of applicable state law.
"Processes reasonably designed to ensure that factual assertions made in pleadings, declarations, affidavits, or other sworn statements..."? I'm pretty sure that sworn statements are supposed to be true. Not that there should be a "process designed to ensure that" blah blah blah bureaucracy babble. Sworn statements are just supposed to be truthful statements. Saying things that aren't true in sworn documents and submitting them to the courts, even if you don't do it very often, is problematic.
And finally, this is the big fear of the servicers.
Servicer shall implement processes reasonably designed to ensure that Servicer has properly documented an enforceable interest in the promissory note and mortgage (or deed of trust) under applicable state law, or is otherwise a proper party to the foreclosure action (as a result of agency or other similar status), including appropriate transfer and delivery of endorsed notes (which may be endorsed in blank) and assigned mortgages or deeds of trust at the formation of a residential mortgage-backed security, and lawful endorsement and assignment of the note and mortgage or deed of trust to reflect changes of ownership, all in accordance with applicable state law.
Someone is worried about the legal theories surrounding the transfers of notes and standing for foreclosures, and wants to ensure that the state Attorneys General don't pursue that line of argument.
See full text of Proposed Deal.
Matt Stoller is a Fellow at the Roosevelt Institute and the former Senior Policy Advisor to Congressman Alan Grayson.