During the height of the robo-signing scandal, large mortgage servicers cut legal corners to expedite foreclosures. Office clerks attested to legal documents with no knowledge of their contents in a blatant attempt to mislead the courts. In response, all 50 state attorneys general began negotiating a settlement with the largest mortgage servicers, including Bank of America and Citigroup, to address the widespread abuses. Now there are legitimate concerns that the settlement being discussed is too lax and would not do enough to expose the extent of the fraud perpetrated nor hold banks sufficiently accountable. California's attorney general has withdrawn from settlement talks as a result, as have the attorneys general of New York and Delaware. Florida should consider doing the same.
The office of Florida Attorney General Pam Bondi is part of a bipartisan negotiating team working on the settlement. While not public as yet, preliminary reports are that banks would modify the mortgages of about a million homes where the owners are underwater, equating to about $17 billion to $20 billion. The banks also would put up $5 billion to $8 billion to aid homeowners with refinancing and other types of services. Going forward the banks would have to agree to higher standards for loan servicing and foreclosures.
In exchange, the banks would be given broad waivers from legal liability from an array of actions. The settlement reportedly would prevent states from pursuing claims of foreclosure abuse, which could include the banks' mistreatment of homeowners and disregard for the legal process. States would also likely be prevented from going after the banks for their use of the Mortgage Electronic Registration Systems database, or MERS, a private system that tracks ownership interests in mortgages. It was set up by financial institutions as a way to avoid the hassle and expense of recording changes each time loans were bought and sold.
The Obama administration is reportedly in favor of the deal because it would provide relief to so many underwater homeowners. But beyond whether the financial penalty is sufficient are questions on whether the settlement will impede fraud investigations and require banks to rectify the paperwork mess they've made for an untold number of properties.
Delaware's attorney general, Beau Biden, recently sued MERS owner Merscorp Inc., saying in court papers that as mortgages were transferred, MERS made the changes within its own "frequently inaccurate" database, which was the only record. The lack of openness from MERS and the fact that loan transfers were not publicly recorded impeded the ability of homeowners as well as the public to know the true owner of the mortgage, and which entity ultimately had the legal right to foreclose. Presumably, that problem still exists.
Jim Fuller, the court clerk of Duval County, also filed suit against Merscorp last month claiming that the MERS private recording system "usurped the rights and privileges of the Florida Clerks of Court." He seeks to represent Florida's 67 counties and recoup millions in unpaid recording fees.
These efforts and any ongoing investigations into the misconduct of bank servicers and MERS should not be swept aside by the banks buying their way out. Bondi's office says it seeks to "reach a resolution that ensures homeowners receive much-needed relief, laws are upheld, entities are held accountable, and stability is restored to America's housing market." That would be great, but the early reports of the settlement suggest that real bank accountability is still missing.