Nevada Sues B of A, Puts Another Nail in the Coffin of the Foreclosure Settlement

For some time it has seemed likely that the proposed 50-state foreclosure settlement was likely to fall apart.  Back in June, New York Attorney General Eric Schneiderman said that he would take the “hardest line” against what he deemed to be a “quick, cheap settlement”. Despite pressure from Wall Street, the Obama Administration, and the coalition of Attorneys General promoting the settlement, Schneiderman has stuck to his guns. Attorney General Beau Biden of Delaware and Attorney General Martha Coaxley of Massachusetts have also expressed interest in pursuing their own settlements.

Late yesterday, Paul Kiel of the excellent ProPublica.org reported that Attorney General Catherine Cortez Masto has hit Bank of America with a broad lawsuit that could further threaten the settlement.

“The state of Nevada dramatically expanded its lawsuit against Bank of America today, turning the narrow case it filed late last year into a broadside that targets virtually all aspects of the bank’s mortgage operations. Bank of America has previously denied wrongdoing.

The sweeping new suit could have repercussions far beyond Nevada’s borders. It further jeopardizes a possible nationwide settlement with the five largest U.S. banks over their foreclosure practices, especially given concerns voiced by other attorneys general,New York’s foremost among them.”

Nevada was absolutely hammered by the housing bubble and subsequent meltdown.  Nearly two-thirds of homes in Nevada are underwater, and the average homeowner has about $41,000 in negative equity.  It makes a ton of sense that Nevada would investigate the actions of mortgage lenders, and it is somewhat surprising they didn’t do so prior to this point.

The Nevada lawsuit alleges that B of A violated an agreement it made with the state promising it would modify many loans in the state.  The lawsuit also says that B of A “engaged in a pattern and practice of deceptive conduct”.  In a nutshell, they claim that B of A gave borrowers mortgages that they knew the borrower could not afford, continued to mislead borrowers by making insincere attempts at loan modifications, and then foreclosed on these properties, often while filing fraudulent documents in order to do so.  The suit says that “taken together and separately, [B of A's] deceptive practices have resulted in an explosion of delinquencies and unauthorized and unnecessary foreclosures in the state of Nevada.”

Nevada now intends to investigate B of A’s mortgage origination, securitization, and foreclosure processes.  Investigation into these matters is going to cause big problems for the 50 state foreclosure settlement, which the major banks will never agree to unless it grants them broad indemnity for all foreclosure/mortgage-related matters.

In case you were unaware of the settlement, here is some background: A proposed settlement was the result of the joint “investigation” between all 50 State Attorney Generals and major lenders over alleged foreclosure and mortgage abuses.  The investigation was lead by Iowa Attorney General Tom Miller, who initially promised to pursue criminal charges against those who had committed fraud, and later reneged on that promise.  The proposed settlement figure was said to range between $20-$25 billion, although this figure was rejected by banks, who proposed paying a $5 billion settlement.  This proposal was also rejected as being too low.

I am hopeful that the efforts of the AGs of Massachusetts, Nevada, New York, and Delaware will uncover what really happened during the housing bubble, and hold those who helped to wreck our economy accountable for their actions.  This is starting to get interesting.