By Margaret Cronin Fisk and David McLaughlin
NEW YORK - Iowa Attorney General Tom Miller, the leader of a 50-state probe of foreclosure practices, said a settlement is “closer” and that state and federal officials want a monitor to ensure that banks keep their promises.
The state attorneys general began an investigation in October as a response to revelations of faulty foreclosure procedures by mortgage servicers. The states and the U.S. Justice Department have been negotiating an accord with the five largest servicers including Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co.
A settlement with the banks should include a monitor to ensure they comply with all the terms of any agreement, Miller said Thursday in a phone interview. A monitor would have “substantial authority” to enforce the settlement terms, he said.
“One of the great challenges is enforcement,” Miller, a Democrat, said. “We have to make sure that they do what’s promised. That’s going to be very difficult.”
The state attorneys general are seeking “considerably more” than the $5 billion proposed by the banks as a settlement figure, he said. Payments by the banks should go toward mortgage principal reductions and compensating homeowners for wrongful foreclosures said Miller, who declined further comment about the amount that state and federal officials are seeking.
In March, state and federal officials submitted their proposed settlement terms to the servicers, a group that also includes Citigroup Inc. and Ally Financial Inc., seeking funding for principal writedowns and standards for servicing loans and conducting foreclosures. Terms have been revised as the two sides negotiate.
“We’re getting closer” to a resolution, Miller said. He wouldn’t predict when an agreement would be reached. “It’s hard to put a time on it that would be accurate.”
Bank of America spokesman Dan Frahm, JPMorgan spokesman Thomas Kelly, and Vickee Adams, a spokeswoman for Wells Fargo, declined to comment. Gina Proia, a spokeswoman for Ally Financial, didn’t immediately comment.
“We consider our conversations with the AGs and agencies to be private, so we do not provide details,” Mark Rodgers, a Citigroup spokesman, said in an e-mail.
Miller said it’s “likely” that principal reduction would be part of the agreement.
“Principal reduction is important to have the maximum effect of keeping as many homeowners in their homes as possible,” he said. Banks and investors would also receive more through partial payments than through foreclosures, he said. The issue is “part of the ongoing negotiations,” Miller said.
A group of Republican attorneys general, including Florida’s Pam Bondi and Greg Abbott of Texas, criticized the settlement proposal submitted to the banks as going too far, saying they opposed a deal that would fund principal reductions.
Four of the officials said in a letter to Miller in March that the proposal for principal reductions may actually foster an unintended “moral hazard.”
“I think the states are working pretty well together given there are 50 of us each separately elected by citizens of our states and have different views on things,” Miller said.
State and federal officials are also working with government mortgage companies Fannie Mae and Freddie Mac on the settlement, he said. Any deal that sets servicing standards will affect Fannie and Freddie as investors in mortgage-backed securities, though their support for the deal isn’t necessary, Miller said.
“We’re working with them to try to be on the same page on as many things as we can,” he said.
Officials are seeking to provide restitution to borrowers whose homes were improperly foreclosed on.
“That’s imperative that somehow they’re compensated,” Miller said.