Four state attorneys general have sent a letter to Iowa AG Tom Miller objecting to provisions of the 27-page proposed settlement with the top five servicers.
Attorneys General Kenneth Cuccinelli of Virginia, Greg Abbott of Texas, Pam Bondi of Florida, and Alan Wilson of South Carolina sent the letter on Tuesday to Miller, who is leading the servicing settlement for the AGs, arguing the proposed terms go too far.
"The term sheet appears to reach well beyond the scope of our enforcement role, and, in some instances, far exceeds the scope of the misconduct which was the subject of our original investigations," the AGs wrote. "Many terms go beyond enforcement into regulation that would have attorneys general deeply involved in the review and monitoring of the servicers' everyday business practices and would go so far as mandating automatic review of modification denial whether or not requested by the homeowner, and even dictating how payments should be applied."
The AGs wrote that the settlement, if enacted, could hurt the housing market's recovery.
"These and other terms could have unintended effect of unnecessarily prolonging the foreclosure process and therefore delaying the recovery of the housing market," they wrote.
Specifically, the AGs took issue with Miller's push for principal write downs.
"We are particularly concerned that the term sheet appears to propose government-imposed solutions to problems in the financial markets that the investigation was never intended to address," the AGs wrote. "As some of us have expressed to you and your staff in the past, we remain troubled that the term sheet proposes to imposed heightened loss mitigation requirements and forced principal reductions on mortgage servicers. Although loan modifications and principal reductions may work in some cases, unfortunately there are many mortgages where these mechanisms will be — and have been — ineffective."
Last week, attorneys general from Oklahoma, Alabama and Nebraska also sent a letter to Miller opposing the settlement's principal cramdown.
Miller presented the term sheet on March 7 to the attorneys general at a conference in Washington. It came in response to servicer problems such as documentation issues and robo-signing discovered last year. His 27-page term sheet was presented to the five largest servicers with the support of the Justice Department, the Housing and Urban Development Department, and the Consumer Financial Protection Bureau.
Miller and the regulators are now trying to schedule meetings with the banks to discuss the settlement. Meanwhile, the banks are working on their own counter offer.