Reporting from Washington and Orange County — State and federal authorities could settle an investigation into botched foreclosure paperwork in the next two months, but the toughest issue — how much money would go to victimized homeowners — is still far from resolved.
"We've struggled with it," Iowa Atty. Gen. Tom Miller told reporters Monday about reaching an agreement on damages with the nation's leading mortgage servicers.
Various government agencies have proposed penalties ranging from $5 billion to $20 billion. Miller spoke to reporters after briefing state attorneys general about the investigation at their annual spring meeting at a hotel in Washington.
About 100 people rallied outside the hotel, pressing for a much larger settlement. They held signs that said, "Make Wall Street Pay" and "Send Bank the Bill."
A 27-page list of demands was presented to the banks last week by attorneys general from all 50 states, along with the Justice Department, the Department of Housing and Urban Development, the Federal Trade Commission and the new Consumer Financial Protection Bureau.
Regulators described it as a blueprint for discussions with the banks, not a final settlement. The term sheet, as it is called, did not specify the amount of any fines, restitution or mortgage forgiveness to be made as part of a settlement or how it would be paid to affected homeowners.
Instead, the terms addressed broad mortgage servicing issues, such as how homeowners are treated when they try to modify their loans. Federal banking regulators did not sign on to the proposal, Miller said.
"Laws are not being followed by the servicers. That absolutely has to change," Illinois Atty. Gen. Lisa Madigan said.
Attorneys general involved in the negotiations said they did not want to discuss the sticking points publicly as they prepare to enter talks with the servicers. But they stressed the need to resolve the foreclosure investigation as soon as possible.
"We don't want uncertainty to linger very long," North Carolina Atty. Gen. Roy Cooper said.
Negotiations involve the five largest providers of home loans. They include the arms of four national banks — Bank of America Corp., Wells Fargo & Co., JPMorgan Chase & Co. and Citigroup Inc. Also part of the talks is Ally Financial Inc., the former GMAC, which services loans through its GMAC Mortgage unit.
The servicers keep track of home loan accounts — sending bills, collecting payments and distributing funds to investors of securities backed by those mortgages. They also handle foreclosures and loan modifications, which include lowering interest rates or principal amounts to ease payments, when banks believe that would cost less than seizing and selling a delinquent borrower's home.
State attorneys general, bank regulators and several federal agencies began investigating the servicers last fall. The inquiries came after revelations that banks abused the court process in many states by allowing so-called robo-signers to sign foreclosure documents without reading or understanding them.
The investigation also covered widespread complaints of botched trial loan modifications and modifications that were denied even when they appeared to be in the best financial interest of investors in mortgage securities.
The uproar over robo-signers did not apply to California and 26 other states that usually don't route foreclosures through the courts. But the issues over loan modification complaints were nationwide.