Iowa Attorney General Tom Miller is heading a 50-state investigation into flawed and fraudulent foreclosure practices by big banks and lenders.
He recently testified about the issue before the Senate Banking Committee. He has also met with officials from the Treasury Department and the White House while he was in Washington.
Miller, who recently won re-election to an eighth term, sat down earlier this month with the Washington Post to discuss the investigation.
I'm wondering if you can take us through where everything stands (with the 50-state investigation)?
(Assistant Attorney General) Patrick (Madigan) and his colleagues have had a chance to have a conference call with all the major servicers and sort of hear their side of the story and start the dialogue on these issues. And, in addition, we've met with Bank of America twice in Des Moines.
Those discussions have been, I think, productive. There's still a long ways to go, and still a lot of things to find out and a lot of discussions to have. But as I've said just about every time I've talked about this, the goal once we got in this mess is how can we come out of this mess better off than when we started? We see that as ensuring the "robo-signing" never happens again, providing redress for consumers that were damaged, and then taking a broader look at what's happening in (mortgage) servicing. …
If you can keep a homeowner in the home, and they can make a payment over the long term, (and) if that payment is greater than what would be realized by foreclosure, then the homeowner is better off, the investor is better off, the community is better off and the broader community is better off. … The servicing companies aren't putting enough resources into servicing in general, and modifications in particular.
How are the conversations you're having today (with the banks) different from the ones you've had over the years? Because this is not a new problem for the state AGs, right?
That's right. That was three years ago, when we had those first discussions. We had the 20 largest servicers for subprime in and met with them. They've certainly come a ways since then. They've added people; they've added resources. But they're not where they should be. They've come a ways, but they've got a ways to go, and that's what this is all about.
Why is it that the banks are not finding the incentive to put the resources in, to get this done, and to maximize their yield through the modifications rather than going through foreclosures?
That raises sort of a fundamental question, and that is, is the system fundamentally flawed, that it's not going to work the way I just described? … It was a system set up where (mortgage servicers) essentially would be collectors. People would send their mortgage payment in. They would send it on to the investors. It was never envisioned, this kind of crisis.
So part of the problem is how they're compensated. … They're compensated basically on the volume of loans they service, and that made sense when it was mainly just a collecting business. It makes less sense today. In part, are they compensated enough to fully resource up? Are they compensated too much on fees, so that the fees are added and emphasized, which are counterproductive to the modification process?
The other fundamental problem is the same banks own a lot of the second mortgages, the second liens. When they're acting as a servicer, there's an interest in modifying the loan for the investor, so that the person can pay and the investor can get more than in foreclosure. But there's a strong incentive then to wipe out the second lien. Well, they own the second lien, so how does that all work out?
Is the purpose of the (foreclosure) task force to play the role of de facto regulator and come up with a solution to fix the problem? Or is it to create an investigative record and do civil and/or criminal prosecutions?
In the end, is your goal some sort of global settlement, like with tobacco, where you have all the banks agreeing to engage in a series of steps to remedy this?
What we're trying to do is have individual agreements with the major servicers that are roughly equivalent, which is just a little different than (with) tobacco. It was one agreement.
Have banks been willing enough to reduce principal?
I think they've been too reluctant to do that. But they're edging their way into it. They are doing it more than they did before, but not enough. … There is a cultural issue that I think the banks/servicing companies have dealt with over time. And that is that for a financial institution, and particularly one that's main job is collecting the mortgage payment, to give a reduction in the loan — that's sort of against the culture. There's a cultural step there. But again, they're doing better on that.
Will your remedy include a way for people who've been foreclosed on wrongly … to retroactively fight their foreclosures?
We're discussing that and maybe devising some way that they can get monetary recovery if that happened.