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Bank Foreclosure Practices Deal Said to Be Held Up Over Liability Releases
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By David McLaughlin and Dakin Campbell - Jul 22, 2011 12:54 PM ET

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Delaware Attorney General Beau Biden and New York Attorney General Eric Schneiderman , who are investigating the bundling of mortgage loans into securities, don’t want their probes blocked by a broad settlement of liability. Photographer: Keith Bedford/Bloomberg

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July 22 (Bloomberg) -- Christopher Whalen, managing director at Institutional Risk Analytics, talks about the impact of the Dodd-Frank Act on banks' ability to lend to consumers and the performance of Citigroup Inc., Morgan Stanley, Goldman Sachs Group and JPMorgan Chase & Co. Whalen speaks with Tom Keene on Bloomberg Television's "Surveillance Midday." (Source: Bloomberg)
A push by U.S. banks to win broad liability releases has become one of the main obstacles in talks to resolve a nationwide probe of mortgage-servicing and foreclosure practices, two people briefed on the matter said.
The mortgage servicers want protection from additional state and federal claims over their mortgage practices as part of reaching a settlement that may exceed $20 billion, according to the people, who declined to be named because the talks are private. The banks are seeking releases that go beyond servicing of mortgages to include lending and securitization of loans, one of the people said.
That effort has encountered resistance from at least two states. Delaware Attorney General Beau Biden and New York Attorney General Eric Schneiderman, who are investigating the bundling of mortgage loans into securities, don’t want their probes blocked by a broad settlement of liability.
Biden said he has “strong reservations” about a deal that provides releases of claims related to practices such as securitization and lending, because servicing is the focus of the nationwide settlement talks.
“We have an investigation going on. It would hinder our ability to do that, so that’s why I have real reservations,” Biden said in an interview.
Nationwide Agreement
State attorneys general and officials from federal agencies, including the Justice Department, are negotiating a nationwide agreement on foreclosure practices with the five largest mortgage servicers: Bank of America Corp. (BAC), JPMorgan Chase & Co. (JPM), Citigroup Inc. (C), Wells Fargo & Co. (WFC)and Ally Financial Inc.
Officials are seeking a settlement that sets standards for how the banks service loans, interact with borrowers and conduct foreclosures, according to terms proposed in March. They are also seeking monetary payments. Attorneys general from all 50 states announced their investigation last year after reports that banks were using faulty foreclosure documents.
“Attorney General Schneiderman remains concerned by any settlement agreement that would preclude state attorneys general from conducting comprehensive investigations of the mortgage crisis,” Danny Kanner, a spokesman for the attorney general, said in an e-mailed statement.
Jamie Dimon, chief executive officer of New York-based JPMorgan Chase, said the bank was prepared to go to court if necessary.
‘Do Anything’
“I would do anything to get it done today,” Dimon said July 14 about a settlement, according to a transcript of the company’s second-quarter earnings call. “But we’ve got to get it right. We’re not going to do it and be subject to double and triple jeopardy. We’d rather litigate it.”
Representatives of the banks declined to comment.
Biden said it would be “imprudent” to relinquish claims in areas that haven’t been fully investigated.
“I hesitate to release those claims and those potential liabilities mostly because we’re still in the midst of investigating many of the other related issues,” he said.
Eric Tabor, chief of staff for Iowa Attorney General Tom Miller, declined to comment about the liability releases and the comments from Biden and Schneiderman. Miller is leading negotiations for the states.
“The release is part of settlement negotiations, and we’re not commenting on negotiations,” Tabor said.
Broad Release
In an interview in June, Miller said that in all settlement talks, particularly toward the end, both sides negotiate a release, “and the defendants want as broad a release as they can get, and the states wants to give as narrow a release, and that’s negotiated.”
California Attorney General Kamala Harris is also conducting an investigation into mortgage practices. In May, Harris announced a mortgage-fraud task forcethat would investigate mortgage lending and the sale of mortgage-backed securities to investors.
Shum Preston, a spokesman for Harris, declined to comment about the settlement talks.
To contact the reporters on this story: David McLaughlin in New York atdmclaughlin9@bloomberg.net; Dakin Campbell in San Francisco at dcampbell27@bloomberg.net
To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net; David Scheer atdscheer@bloomberg.net.
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