Washington, D.C. --- Based on what we've heard, the settlement between major banks and states' Attorneys General (AGs), the federal Department of Housing and Urban Development, and the Department of Justice would represent an important step forward in addressing foreclosure abuses. The settlement would include key reforms to clean up unfair mortgage servicing practices. It would also provide an important template for ways banks can use principal reduction to reduce unnecessary foreclosures and put the country back on a path to economic recovery.
Not all details are available yet, and we will continue evaluating the agreement as it becomes available. Based on current information, we are pleased to see a number of key reforms, including:
- No more robo-signing. Banks would agree that key foreclosure documents will be individually reviewed as required by law.
- End of many servicing abuses. The banks would agree to adopt many practices that will result in better communication, fewer delays, and fairer treatment for homeowners who are late on house payments.
- More sustainable loan modifications. The settlement would require banks to get serious about reducing the principal balances on mortgages for struggling homeowners, possibly preventing hundreds of thousands of unnecessary foreclosures.
- Banks remain accountable. While the state AGs would not be able to bring additional origination or servicing claims against the participating banks, the settlement would preserve the ability of homeowners to pursue claims against banks. Moreover, the settlement would not shield banks from prosecution related to criminal activities, claims based on mortgage securities violations, fair lending suits, or claims against MERS. Finally, the settlement would be enforceable in court by an independent monitor.
This settlement would wrap up a year-long investigation focused on robo-signing and other abusive and fraudulent practices by mortgage servicers. This action is a crucial to containing the damaging effects of foreclosures on our economy, but it is only one response—and one that is necessarily limited by legal and practical restraints. Addressing the massive foreclosure crisis requires additional policy actions on multiple fronts.
More than 20,000 new families face foreclosure each month, including a disproportionate percentage of African-American and Latino households. CRL research indicates that we are only about halfway through the crisis.