A mortgage servicing settlement proposed by Iowa Attorney General Tom Miller is under intense scrutiny by several state attorney generals, who publically voiced their concerns about its impact on U.S. financial institutions in media interviews and a March 16 letter to addressed to Miller’s office.
In the letter provided by Oklahoma Attorney General Scott Pruitt’s office, Pruitt writes that while the settlement intends to address allegations against mortgage servicers for improper foreclosures and loan servicing, it is instead “an overarching regulatory scheme that fundamentally restructures the mortgage loan industry in the United States.” Attorneys General Jon Bruning of Nebraska and Luther Strange of Alabama also signed the letter.
The settlement in question is a 27-page term sheet Miller delivered this month to the nation’s five largest mortgage servicers on behalf of all state attorney generals. The proposed terms outline a strict set of mortgage servicing regulations, including new requirements and principal reduction terms.
Pruitt states that the settlement unfairly affects all U.S. mortgage servicers, including local community banks. “This settlement increases their regulatory burden when it is clear they were not engaged in the conduct giving rise to the investigation,” he writes.
Virginia Attorney General Kenneth Cuccinelli said the term sheet “goes beyond addressing the wrongdoings of mortgage servicers.” He added that if credit unions choose to accept the terms, their business processes would become more cumbersome and therefore more expensive.
“Attorney generals should be identifying the wrongdoings of these mortgage servicers and penalizing them, and that’s it,” Cuccinelli said. “This is an inappropriate course of action.”
CU Members Mortgage President David Motley also expressed concern for the settlement, particularly because it includes “servicers’ agents, successors and assignees,” meaning that “any purchaser of the servicer’s servicing would be subject to the agreement.” He’s also against its proposal of implementing principal write-downs as a modification option and suggestion that second liens be modified “pro-rata” with the first lien.
“It is in my mind overly broad, excessively prescriptive, and has the potential to be massively subjective in its enforcement,” Motley said.