Oregon to Sign on to 50-State AG Settlement

Word has it that Oregon has agreed to sign on to the 50-state attorneys general settlement with five of the country’s largest banks: Bank of America, J.P. Morgan Chase, Wells Fargo, Ally Financial, and Citi Group.  As in all settlements, neither side will be completely satisfied, and this time is no different.  But it is high time for something to happen since this effort has  languished for months.

Here’s a partial summary of the general parameters of the settlement:

  • The settlement fund will be approximately $25 Billion. Payment of approximately $30 million will go to Oregon’s state government, including the Department of Justice. The Oregon legislature will have authority over the money.  The goal of the Oregon Department of Justice is to retain approximately $5-6 million to oversee enforcement of the settlement itself and to handle cases brought against these banks under Oregon’s Unlawful Trade Practices Act (“UTPA”).  The issue of specific allocation of the funds is not likely to be considered until after the 2012 Legislative Session.
  • The Department of Justice does not have authority to fund private work by non-profits, such as housing counselors and legal services programs. It would be helpful if a solution could be attained to for some non-profit programs to receive some funding, as this specific group provides a valuable resource to lower income distressed homeowners; for that reason alone, it would be nice if some of the settlement funds could be allocated to them.  We’ll see how that issue shakes out.
  • Much of the settlement funds are intended to provide specific financial aid to homeowners in some form of pre-foreclosure status, as well as to those who may have been improperly foreclosed.
  • As many know, several states have questioned whether the settlement amount is sufficient.  (Delaware, California and New York have balked at participation for their own specific reasons.)  Oregon’s decision to participate was apparently based – in part – upon the absence of a better alternative.  Until March 2010, the Oregon DOJ lacked a remedy to pursue Big Banks on its own, which accounts for one reason why it joined in the 50-state settlement talks in the first place.  Since March 2010, the DOJ has had a right under the UTPA to proceed against the banks – so the settlement funding will certainly help with that endeavor.
  • Some of the settlement funds will also be used for cash payments to those persons foreclosed upon, probably in the range of $1,800 a person, depending on the number of claims made.  The claim forms will not require homeowners to sign a release against the banks/servicers.  Thus, payment to homeowners from this settlement will not prejudice their rights to seek additional recovery via private litigation or under the Independent Foreclosure Review process initiated by the Office of Comptroller of the Currency.
  • It is anticipated that there will be a large pool of money (at least $100 million, per the Oregonian) for loan modifications, refinancing, and principal buydowns for homeowners suffering significant negative equity.   The money will also be used to provide funding for homeowners to renegotiate second mortgages with the banks – who historically have been the “spoilers” in many types of distressed housing solutions such as loan mods, short sales, and deeds-in-lieu-of-foreclosure.  Again, the monies allocated per homeowner will depend on the number of claimants.

Significantly, the settlement will impose servicing standards comparable to those in the state of New York.  This is particularly important since it is doubtful that such laws could have been passed in Oregon’s upcoming 2012 Legislative Session, which will be very short.   These servicing standards will include the following:

  • Prohibition of dual tracking (i.e. where servicers today entertain a homeowner’s request for modification while simultaneously commencing a foreclosure against them);
  • Requiring a single point of contact for borrowers;
  • Setting specific time lines within which the servicers will have to deal with borrower inquiries.

There will be significant penalties for failure to timely perform and independent monitors to oversee servicer compliance.  Since the settlement will be entered as a consent decree in the DC Federal Court, there will also be judicial oversight.

As noted above, borrower participation will not prevent homeowners from pursuing their own private claims. The participating states will not be releasing the five banks from any MERS claims, improper securitization claims, or criminal prosecutions.

However, the participating states will be releasing the banks/servicers from origination claims, robo-signing claims, and wrongful foreclosure claims.

It is likely that Oregon will sign on to the settlement next week, at which time, further details should be released.  Stay tuned!

UPDATE: The settlement was just announced today, February 9, 2012.  Details will begin to appear at the government website here.