In the last post, we began to learn about the doubts that are emerging within the group of all fifty state attorneys general, obviously including Florida, regarding what the best course of action would be in negotiations with the big mortgage banks over punishing the banks for their fraudulent foreclosure practices. The catalyst for the talks was clearly the robo-signing scandal, in which it was revealed that most mortgage banks were falsifying documents used in the foreclosure process.

To avoid prosecuting every fishy foreclosure on a state-by-state and case-by-case basis, the state attorneys general entered into negotiations with the big banks to try to reach a settlement that would most likely include a massive fine for the banks, new procedures for foreclosures and hopefully some genuine relief for homeowners.

The reason some attorneys general involved in the negotiations are expressing doubt is that they are afraid the banks will emerge from the potential settlement with a far better deal than they deserve.

Of particular concern is the practice by the banks of bundling mortgages and selling them as securities. The practice was so arcane that very few people understood even at that time how the mortgages were transferred and what types of risk were genuinely attached to them. What everyone eventually learned was that the securitized mortgages were not only worth less than they were purported to be, but had no value at all. The collapse of the securitized mortgage market was one of the causes of the nations current housing crisis.

Attorneys general like New York's Eric Schneiderman are concerned that the banks will negotiate immunity for themselves before law enforcement even knows what was going on. However, other attorneys general involved in the negotiations have said that the concern is unfounded. They say they would never allow the banks to have immunity from serious fraud. The settlement is specific to robo-signing and mortgage modification.

Schneiderman is arguing that the settlement talks should be more comprehensive, but the other side of the argument is that they should be restricted to narrow issues. In the meantime, homeowners continue to wait for relief.

Source: Wash. Post "N.Y. bumped from 50-state foreclosure committee" Aug. 23, 2011