Banking Law

There's no telling what, in the myriad of items you read each day, is going to strike your funny bone. Take, for instance, the 27-page settlement term sheet that was recently circulated by the attorneys general of all 50 states and the federal banking regulators. Within that document, of all the items that are laugh worthy, I got an initial chuckle out of the requirement on page 9 that loan servicers provide the formula they use to calculate the net present value of loan modifications and foreclosure alternatives on a loan to the CFPB upon request. I can see Liz Warren arm wrestling with the CFO of Wells Fargo over the appropriate discount rate to use in NPV calculations. You get the sense that there's no crevice into which an eminently unqualified bureaucrat won't be poking his or her nose if such settlement terms are agreed to by the servicers. It won't be long before the size of paper clips used to attach portions of loan modification documents will be specified by the CFPB and/or the AGs.

I also like the requirement on page 19 that servicers "consider partnering with national chain retailers such as FedEx Kinko's, Staples, Office Depot, and Wal-Mart, or through use of bank branches affiliated with Servicer, to allow borrowers to copy, fax, scan and mail or email documents to Servicer free of charge with national chain retailers." As you plow through weeds this thick, AGs, you might ask yourself what this type of procedural minutiae has got to do with enforcing the law, as opposed to...you know...social engineering.

According to Housing Wire, these folks, who propose to regulate the mortgage servicing industry with laser-like precision and in minute detail, have apparently failed to understand the basic fact that before you make a settlement proposal to the other side, you need to get your own side on the same settlement page.

...[I]t appears there is some negotiation left to complete between the AGs themselves.

"We haven't even begun face-to-face discussions with the banks yet," a spokesman in Miller's office told HousingWire Monday. "We'll begin the negotiations and hammer out an agreement."

The spokesman at Miller's office said the proposal was transmitted to all 50 state AGs before it was sent to the banks. But a spokesman in Utah Attorney General Mark Shurtleff's office said he hasn't seen it.

"We'd love to comment on it (the settlement), but we wouldn't know what we were talking about," the spokesman said.

Other AGs have openly criticized the settlement. Oklahoma AG Scott Pruit opposes the settlement, saying that a principal write down requirement would force servicers to violate their contractual obligations to mortgage investors. Virginia AG Kenneth Cuccinelli told Bloomberg at least a dozen states, including his own, don't back the proposal.

It takes extra special effort to make yourself look more inept than large loan servicers, but it's obvious that the state AGs have what it takes.