A comprehensive settlement between US authorities and banks over alleged abuses of mortgage servicing needs to be reached quickly to help the housing market heal, Treasury Secretary Timothy Geithner said on Tuesday. Geithner said such a settlement would allow the government to focus more directly on repairing the damage to the broader housing market and will help dispel the legal uncertainty plaguing mortgage lenders.
"It is very important that we try to bring this to bed as quickly as we can," Geithner told the Senate Banking Committee. "I think all parties, not just the servicers, but the state AGs and the federal agencies have a strong stake in doing that." A group of 50 attorneys general and 12 federal agencies are probing bank mortgage practices that burst into public view last year, including the use of "robo-signers" to sign hundreds of unread foreclosure documents a day.
The negotiators are struggling to reach a single agreement on financial penalties and higher standards for banks handling troubled home loans. A "global" settlement with the authorities would relieve a potentially large legal liability and reputational black eye for the banks, as they could face a myriad of lawsuits and fines without a universal agreement.
Negotiations have focused on the top US mortgage servicers, including Bank of America Corp, J.P. Morgan Chase & Co, Citigroup Inc, Wells Fargo & Co and Ally Financial. John Walsh, a top bank regulator, said earlier on Tuesday that US federal and state authorities still hope to reach a single settlement proposal they can present to the banks over alleged abuses.
"We each have our own separate responsibilities and areas of jurisdiction, but to the extent possible we are trying to coordinate our actions," Walsh, acting head of the Office of the Comptroller of the Currency, said at an American Bankers Association conference. "Whether this is possible remains to be seen." 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, a proposal banks have not supported in the past. State and federal authorities continue to negotiate over the key aspect of any settlement: What fine or penalty banks will have to pay.
At least some of the officials who endorsed the proposal sent out earlier this month have been pushing for a fine of about $20 billion, which would be used in part to help struggling homeowners. Critics of the disjointed settlement negotiations, including a group of House of Representatives Republicans, have argued the early proposal is an abuse of power that could harm markets.