6 Min Read
* BofA CEO: Settlement in "everyone's best interest"
* Iowa AG says deal is months off
* Senator Dodd pushes for loan modifications (Adds details about Thursday's hearings)
By Joe Rauch and Dave Clarke
CHARLOTTE, N.C./WASHINGTON, Nov 16 (Reuters) - A quick settlement of the 50-state probe of the U.S. mortgage foreclosure crisis would be the best solution for all involved, the chief executive of Bank of America said on Tuesday.
The call for a settlement by Bank of America CEO Brian Moynihan was followed by comments from Iowa Attorney General Tom Miller, who told a Senate hearing that a settlement with lenders was still months off.
"We're thinking in terms of months rather than a year or longer but it depends really on how far we get," said Miller, who is heading up a probe by all 50 state attorneys general.
Banks are accused of having used "robo-signers" to sign hundreds of foreclosure documents per day without proper legal review. The allegations that banks' use of shoddy paperwork resulted in struggling borrowers being illegally evicted from their homes reignited public anger with banks that received billions of dollars in taxpayer aid during the financial crisis.
In addition to the probe by the 50 states, major lenders are facing investigations by the U.S. Justice Department and federal bank regulators.
Miller, testifying before the Senate Banking Committee on issues concerning mortgage servicing and foreclosures, said the timeline for a settlement could stretch as attorneys general consider whether to expand their probe.
Earlier on Tuesday, CNBC reported that Miller was getting close to a settlement with banks. After the hearing, the Iowa attorney general denied that was the case, saying "we are a long ways from an agreement."
Miller said talks with lenders have been "productive." He said settlements could include financial penalties and a pledge that banks do away with pursuing foreclosures on an individual borrower at the same time that efforts at a loan modification are under way.
Lawmakers, while pressing for more modifications, specifically urged lenders to get rid of this so-called "dual-track" approach.
"It seems like if there's a good faith modification process under way, the foreclosure process ought to be shut down," said Senator Jeff Merkley, a Democrat from Oregon.
But Barbara Desoer, the home loans chief of Bank of America, said her bank has its hands tied in situations when it is only the servicer of a loan, not an investor, and therefore must go forward with foreclosure proceedings against delinquent borrowers.
Nonetheless, Desoer told the committee that Bank of America, the largest U.S. mortgage servicer, is working with state attorneys general on this "dual track" issue.
"We are talking to the state attorneys general under Attorney General Miller's leadership to try to amend that process because we understand how confusing it is," Desoer said.
Moynihan, speaking earlier on Tuesday at the Bank of America Merrill Lynch Financial Services conference in New York, said the industry and lawmakers need to look at streamlining foreclosures, but expressed urgency at wrapping up the joint 50-state probe. [ID:nN16104232]
"It is in everyone's best interest to get this settled and behind us," Moynihan said.
U.S. bank regulators, for their part, expect to wrap up their review of lenders by January. [ID:nN16137403]
But as bankers testified about efforts to resolve the problems with foreclosure documentation, senators expressed skepticism that banks had a handle on the foreclosure process, saying they are inundated with complaints from constituents.
"Montana is not a state where people come to their senator willy-nilly," Democratic Senator Jon Tester said, adding that he does not view the complaints as isolated problems.
Bankers also received a bit of a rough reception from the hearing audience. One protester interrupted the testimony of David Lowman, chief executive for home lending at JPMorgan Chase, before being escorted out by security. Witness comments critical of mortgage servicers drew repeated rounds of applause.
A House Financial Services subcommittee will hold a similar hearing on Thursday but with a witness list that includes federal banking regulators and representatives from more lenders, including Wells Fargo, Ally Financial and Citigroup (C.N).
Banks have been eager to downplay the impact of the paperwork mess, saying evictions through foreclosure have been "materially accurate."
Desoer acknowledged problems in the bank's foreclosure practices in her testimony and said the bank is working to replace previously filed affidavits in as many as 102,000 pending foreclosure cases.
"Thus far, we have confirmed the basis for our foreclosure decisions has been accurate. At the same time, however, we have not found a perfect process," said BofA home loans chief Barbara Desoer.
Senate Banking Committee Chairman Christopher Dodd said at the hearing that he is concerned mortgage servicing problems go beyond the recent questions about whether paperwork is being properly handled.
"We need to have more robust loan modifications, including loan modifications that result in real principal forgiveness that will finally help put an end to our housing crisis," Dodd said.
He said foreclosures should proceed quickly when there is no other option, particularly when home has been abandoned.
"There is no reason in the world to slow down the process on these homes," he said.
Dodd said he hopes to have another hearing this year with bank regulators, and said he still wants to explore whether forecloses pose a larger risk to the economy. (Additional reporting by Corbett Daly in Washington and Jonathan Stempel in New York; Editing by Leslie Adler, Gary Hill)