The balance of power in the ongoing foreclosure scandal has clearly shifted to the collaborative 50-state investigation being lead by Iowa's top law enforcement official Tom Miller. The state attorneys general are now in the drivers seat and the the money center banks have clearly taken notice. Reflective of this fact, Bank of America has lead the way in opening negotiations and the rest of the major mortgage lenders are sure to follow suit. It seems clear already that the banks will have a harder time getting their way at the state level after enjoying years of "easy going" requirements and relationships with federal regulators and congressional politicians. Oh well, the party had to end for the banks at some point and I guess late is better than never. The irony of it all is that state law enforcement officials and financial regulators have been gunning for the mortgage industry for years, but were stymied in their efforts by various federal authorities. It was clear to many state officials years ago that the mortgage market was too lightly regulated and teeming with fraudulent behaviors. Now many of these same state officials finally have their chance to respond aggressively without being blocked by cozy federal relationships. Just one example - as far back as 2007, Iowa attorney general Miller lead a multistate working group of law enforcement officials and financial regulators that pressed banks to rework troubled loans.
This time around the pressing will be harder and the stakes will be substantially higher. You might expect the 50 AG's to shoot for major financial fines and new curbs on industry practices, but it appears they have something even more drastic and remedial in mind. The most likely end-game scenario seems to be revolving around a sweeping (and relatively speedy) settlement that calls for serious and meaningful mortgage modification efforts that allow borrowers to stay in their homes on a more realistic financial basis. Where would the money for those deeper modifications come from? The banks would be permitted to escape huge financial fines for their illegal misconduct and would instead be forced to use the money to fully fund a more effective (read realistic) loan modification process. That sounds like justice to me ... or at least something a little closer to it than what we have witnessed so far.
Michelle Sterling
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