Settlement May Be Near In States' Foreclosure Probe

A massive, 50-state probe of lenders' foreclosure policies and practices may be close to a settlement, at least with five of the nation's largest mortgage banks.

In a telephone interview with Bloomberg News, Iowa Attorney General Tom Miller, who heads the investigation, said the states will first ink settlements with Bank of America, JP Morgan Chase, Citigroup, Wells Fargo & Co. and Ally Financial, formerly GMAC Mortgage.

"What we're looking at is five separate agreements with the five largest servicers," Miller told the news agency. "We're still a ways away" from reaching agreements, he said. "We're working very hard to figure out what should be in the settlement."

In October, all 50 state attorneys general joined a single investigation of foreclosure practices after details of "robo-signing" and other mortgage company short-cuts began to surface in legal depositions. In 23 states a mortgage company official is required to read all foreclosure documents and sign in the presence of a notary that they have reviewed the documents and the foreclosure is justified.

A number of states quickly began individual investigations of these reports, and in some cases took legal action. On October 6, 2010, Ohio Attorney General Richard Cordray filed suit against GMAC; its parent, Ally Financial Inc.; and one of its employees, Jeffrey Stephan.

According to the lawsuit, GMAC and its employees committed fraud on Ohio consumers and Ohio courts by signing and filing at least hundreds and potentially thousands of false affidavits in foreclosure cases. The alleged fraud came to public light after Stephan testified in depositions out of Florida and Maine that he signed thousands of affidavits without personal knowledge or verifying the content.

In Arizona that same month, Attorney General Terry Goddard called on the legislature to enact a Borrowers' Bill of Rights that would crack down on unscrupulous mortgage servicing activities.

Joining forces

In late October all the individual investigations were rolled into one, with Miller taking the lead. The Mortgage Foreclosure Multistate Group, comprised of state attorneys general in all 50 states, and state banking and mortgage regulators in more than three dozen states, has been exploring whether individual mortgage servicers have improperly submitted documents in support of foreclosures.

Specifically, the group has investigated whether companies misrepresented on affidavits and other documents that they reviewed and verified supporting foreclosure documentation.  The group is also attemptting to determine whether companies also signed affidavits outside the presence of a notary public, along with other possible issues regarding servicing irregularities or abuses.

If settlements are reached with the five major lenders, they would be the first so far. Miller said the five hold 59 percent of the U.S. mortgage market.