“Reuters” - U.S. bank regulator plans separate foreclosure settlement
March 25, 2011 Reuters
March 24, 2011
CHARLOTTE, N.C./SAN DIEGO, March 24 (Reuters) - The main regulator for the largest U.S. banks is preparing to break from state authorities and settle with lenders over their foreclosure practices, according to a source familiar with the process, dashing hopes for a comprehensive settlement.
About a dozen federal authorities and 50 state attorneys general have worked for months to reach a coordinated settlement that would let banks contain their litigation risk, help homeowners mistreated during foreclosures, and remove a cloud of uncertainty hobbling the housing market's recovery.
But the Office of the Comptroller of the Currency, impatient with infighting over the structure and shape of a coordinated settlement, is preparing to move on its own set of fines and business-practice fixes for banks, according to a source who was not authorized to speak publicly.
The OCC's settlement could come in the next couple weeks, the source said.
Such a settlement would likely be smaller in scope than a deal envisioned by other U.S. authorities forcing banks to pay about $20 billion -- which would be used in part to help struggling homeowners -- and to agree to reduce loan balances to keep borrowers in homes.
But it could be bad for banks such as Bank of America Corp, Citigroup Inc and Wells Fargo & Co, leaving them open to lawsuits from investors and homeowners and to massive settlement demands from state authorities.
Also, the OCC settlement is expected to give little relief to struggling homeowners, millions of whom are facing mortgages that are worth more than their homes.
OCC spokesman Bob Garsson declined to comment.
Analysts said multiple settlement agreements issued by federal and state authorities would be the worst-case scenario for the largest U.S. banks.
"The banks would rather their multiple regulators come together and coordinate, but it just seems like that's not happening," said Jefferson Harralson, a bank analyst with Keefe, Bruyette & Woods Inc.
The wide-ranging investigations into the industry's foreclosure practices began last fall. Several large U.S. mortgage lenders temporarily suspended foreclosures amid allegations they improperly handled the home repossessions.
Critics alleged the banks used so-called "robo-signers" -- employees who reviewed hundreds of foreclosure documents daily without ensuring the documents' accuracy.
GROWING TENSIONS
The OCC's potential split is the latest symptom of the contentious, ongoing debate about how best to fix the U.S. mortgage market, and who should bear the losses for millions of foreclosed homes nearly five years after the housing market began to collapse.
The authorities had hoped to reach a coordinated settlement that would fix servicing problems, penalize the banks, and help homeowners wrongfully foreclosed.
Banks have wanted a quick, coordinated settlement because it could help contain the litigation risk facing the industry and allow them to start repairing the damage from the latest blow to the industry's reputation.
Treasury Secretary Timothy Geithner has also said such a settlement would help bring some certainty to the still ailing U.S. housing market.
Last month, sources familiar with the investigation said the state attorneys general and representatives from the new Consumer Financial Protection Bureau were seeking to create a foreclosure fund financed by the banks with as much as $20 billion in cash. They were also seeking to require the banks to conduct principal writedowns on mortgages if the debt on a home is greater than the home's market value.
Those demands went beyond what some other regulators, including the OCC, thought was appropriate.
OCC acting head John Walsh has said the bank regulator probe found "critical deficiencies" in the industry's foreclosure practices, but said only a small number of homeowners have been wrongly evicted.
In a sign of growing tensions among the authorities, on March 3, state attorneys general sent banks aspects of a proposed settlement endorsed by some federal agencies but not the OCC or the Federal Reserve, the main banking regulators involved in the discussions. The 27-page document proposed changes to how the mortgage servicing industry operates and advocated reducing loan balances for struggling borrowers as a way to help them avoid foreclosure.
Republican lawmakers and some state attorneys general have slammed that 27-page document, calling it an abuse of power.
(Reporting by Joe Rauch and Dave Clarke)