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Federal Regulators’ Settlement Term for Foreclosure Abuse Does Not Mention Reduction of Loan Principal

Filed under: Foreclosure Crisis

Federal regulators announced on 13th February settlement relating to foreclosure abuses by mega servicers. This will make it more difficult for the attorneys general of states and the Obama government to compel the banks to lower the bank balances for the troubled house owners.
Fourteen big mortgage servicers including the behemoths JPMorgan Chase and Wells Fargo have given their nod to reviewing all the foreclosures executed from 2009 to 2010. If losses are found then the money would be refunded. The banks also agreed to better their methods of foreclosing by hiring more trained staff, upgrade tracking systems of documentation and enabling each borrower with a single contact point.
The proposals of the attorneys general submitted last March, ran along similar lines but they also wanted reduction of loan balance; this the regulators did not mention. This may hamper the group that is working with the government under the lead of Tom Miller, AG of Iowa to from pushing ahead with this vital issue pertaining to those borrowers who are underwater – the value of their property being less than the loan due amount.
Mark A. Calabria of Cato Institute (Director of Financial Regulation) based in Washington researching in public-policy said, “I have always been pretty skeptical about the ability of principal reductions to get you much. I think we will look back and say this was the death knell”.
In the settlement the monetary penalties continue to hang in the air. Among other clauses the banks have been prohibited from seizing the homes of borrowers while talks on modification, trial or permanent, are proceeding. The attorneys general going a step forward wants the foreclosure process to be frozen while workouts are being evaluated.
This agreement has been reached after reviews were undertaken by OCC, the Federal Reserve, the OTS and FDIC. The banks neither admitted nor denied the findings of the regulators.
The thorny issue among the AGs has been that of loan reduction. A minimum of seven AGs rejected this suggestion. The CEO of Bank of America had opined that comprehensive cuts in principal would be bad policy as it would not be fair on those who were current on their mortgages.
Miller has pushed the idea of cuts in principal to be the best way to give a fillip to the sagging housing market.

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