Up to 40 state attorneys general are preparing to launch a joint investigation into the mortgage industry over the foreclosure-document mess.
If the states have their way, mortgage companies will have to revamp the way they handle foreclosures, pay penalties for violations and expand help to homeowners on the verge of foreclosure.
The top law enforcement officials of states around the country are already weighing the outlines of a potential settlement with the industry, said Iowa Attorney General Tom Miller, who will lead the investigation. The inquiry will be announced Wednesday morning.
Miller said one idea being discussed is to create an independent monitor to review whether banks have fixed their problems.
“We want the companies to put in a system such that this will not happen again,” Miller said in an interview with The Associated Press. “We want to explore what other remedies might be available, in a way that makes homeowners and the general housing economy better off.”
Some banks, such as Wells Fargo & Co. and Citigroup Inc., insist they did nothing wrong. But employees of Bank of America, Ally Financial’s GMAC Mortgage unit and JPMorgan Chase have acknowledged in depositions that they signed thousands of foreclosure documents without reading them.
“The behavior already on the record involves thousands of false statements to judges,” said Peter Swire, an Ohio State University law professor who recently left the White House economic policy staff. “That’s a weak hand for the banks.”
Attorneys general have taken the lead in responding to a nationwide scandal that’s called into question the accuracy and legitimacy of documents used to force millions of people from their homes.
“This is a serious matter, and I think that the financial firms that engaged in this practice have real exposure,” said Ohio Attorney General Richard Cordray. “It would well serve them to think hard about what their exposure is.”
The attorneys general “are trying to step in and make policy where the federal government has failed to do so,” Howard Glaser, a mortgage industry consultant in Washington.
Several federal agencies have been looking into the issue, and White House spokesman Robert Gibbs said Tuesday the administration supports “the steps that the attorney generals and our federal regulators are taking to get to the bottom of and to fix the process in the mortgage industry.”
The Obama administration has rebuffed calls for a national halt to foreclosures despite pressure from consumer advocates and some Democratic lawmakers. Officials argue that halting sales of foreclosed homes could prevent the housing market from recovering. The administration says a freeze also would distract many lenders from their efforts to help borrowers in danger of foreclosure.
“We want to make sure that they don’t take their eye off the ball,” Shaun Donovan, President Barack Obama’s housing secretary, said in an interview this week. “What we shouldn’t be doing is taking steps that will hold back what everybody is trying to achieve here, which is to create stability in the housing market.”
Joint investigations by state attorneys general have achieved some successes in recent years. Online ad publisher Craigslist, for example, shut down its adult services section amid pressure from 17 attorneys general. The AGs had maintained there weren’t enough protections against potentially illegal ads promoting prostitution and child trafficking.
And two years ago, Bank of America reached a settlement with attorneys general of allegations of deceptive practices at fallen mortgage giant Countrywide Financial Corp. Bank of America, which acquired Countrywide in July 2008, agreed to modify troubled mortgages for nearly 400,000 customers.