Whose Side Are They On? Some Attorney Generals Back Banks Over Mortgage Deal

The rampant lawlessness of banks and mortgage servicers around foreclosures and mortgage modifications is now well known. Investigations and lawsuits in multiple states have turned up a mountain of damning evidence of how the banks and servicers have fabricated crucial documents and routinely lied to home owners in ways that have had devastating financial consequences. 

State attorney generals nationwide have been moving ahead individually with suits against a range of wrongdoers. But years of uncoordinated litigation can be avoided if the attorney generals can agree on a giant deal with top banks to halt their abusive practices and pay a substantial penalty for their actions. Early last week, it was looking hopeful that a deal could be reached, as a 27-page "term sheet" surfaced that the attorney generals had already given to major lenders.

Quite apart from reining in rogue mortgage servicers, the deal could finally give stressed homeowners a better chance at avoiding foreclosure -- a crucial goal in the face of federal failures to stop the epidemic of foreclosures. As the Wall Street Journal reported:

Under the proposal, mortgage servicers would be forced to freeze foreclosures while borrowers are under evaluation for a loan modification. And more borrowers would have to be considered for reductions in the principal amount of their mortgage.

Negotiations betweeen the banks and the AGs are supposed to start soon. But it is not clear whether a deal will actually happen. Why? Because there are some attorney generals who oppose a tough stance that forces banks and servicers to change their behavior, repeating the familiar conservative mantra that regulation is the enemy of prosperity. (Never mind that de-regulation is what caused today's economic crisis in the first place.)

As reported today:

A mortgage servicing settlement proposed by Iowa Attorney General Tom Miller is under intense scrutiny by several state attorney generals, who publically voiced their concerns about its impact on U.S. financial institutions in media interviews and a March 16 letter to addressed to Miller’s office.

In the letter provided by Oklahoma Attorney General Scott Pruitt’s office, Pruitt writes that while the settlement intends to address allegations against mortgage servicers for improper foreclosures and loan servicing, it is instead “an overarching regulatory scheme that fundamentally restructures the mortgage loan industry in the United States.” Attorneys General Jon Bruning of Nebraska and Luther Strange of Alabama also signed the letter.

This letter comes on the heels of charges last week Senate Republican Richard Shelby that the proposed settlement amounted to a "regulatory shakedown." (Shelby blamed Elizabeth Warren and the Obama Administration, even though this effort clearly emerged from the first-hand experience that state authorities have had dealing with foreclosure and modification abuses, crimes which are under state jurisdiction.)

Republican attacks on a would-be deal have unfolded in concert with a public relations drive by the banks -- once against demonstrating how closely aligned the GOP and the banks really are.

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