Foreclosure Deal in Danger of Collapsing as AGs Reject Settlement

The proposed foreclosure settlement appears to be in danger of falling apart.  A coalition of 50 state attorneys general lead by AG Tom Miller of Iowa has spent the past several months “investigating” alleged misdeeds by mortgage servicers and big banks related to foreclosure, robo-signing, and various other abuses.  The terms of the proposed settlement have been criticized by nearly everybody – banks and many on the right say that it is too severe, and consumer advocates and those on the left say it is too lenient.  Now it appears that the whole settlement could be falling apart as four Republican AGs (Greg Abbott of Texas, Pam Bondi or Florida, Alan Wilson of South Carolina, and Kenneth Cuccinelli of Virginia) objected to the settlement, saying:

“[The settlement] appears to reach well beyond the scope of our enforecment role, and in some instances, far exceeds the scope of the misconduct which was the subject of our original investigation”.

David Dayen at Firedoglake.com (I highly recommend reading the article in full) says that these AGs specifically object to principal write-downs, saying that it creates a moral hazard for borrowers who are delinquent on their mortgages.  In addition, three other AGs have objected to Tom Miller, the AG running the investigation.  To make matters worse, a number of Democratic AGs are unhappy with the seemingly rushed nature of the settlement, and the secretive way in which it was negotiated.  Some feel that the settlement would violate consumer protection statutes, and that potentially issuing blanket immunity to lenders and servicers would do a disservice to those who were wronged.

Yves Smith of NakedCapitalism weighs in on this issue, and notes that democratic defections from the settlement would be a much bigger problem for the Obama administration than the objections of Republicans, which could be written off to partisan politics.  If both Democrats and Republicans object to the deal (albeit for totally different reasons), it would seem to serve as evidence that there is something wrong with it.

I, for one, am not optimistic that a deal will be reached, and I am alright with that.  I think these issues need to be hashed out in the courts in order to totally expose all the practices that contributed to the collapse of the housing market and the subsequent foreclosure crisis.  I really dislike the idea that a rushed settlement, reached largely behind closed doors, could be hoisted upon the public without a complete, thorough investigation into servicer and lender practices (especially in light of all the abuses that have been uncovered over the past two years).  What do you think about the settlement?  Let me know in the comments section below.