Banks Face More Mortgage Loan Write-Downs under Settlement Proposal

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March 3, 2011

Banks Face More Mortgage Loan Write-Downs under Settlement Proposal

U.S. banks received a proposal yesterday from state attorneys general and several federal agencies that could require them to reduce loan balances of troubled mortgage borrowers, the Wall Street Journal reported today. The document, sent to the nation's largest mortgage servicers, does not specify penalties or fines but instead represents a detailed code of conduct for how they must treat borrowers throughout the loan-modification process. Banks have yet to receive a separate settlement proposal to pay for damages prompted by the foreclosure-document handling crisis that began last fall. Yesterday's document focuses instead on improving the way that banks treat borrowers who are seeking modifications or are going through foreclosure. The proposal represents the clearest indication that state attorneys general are working with the Obama administration and other regulators to pursue a significantly broader settlement against the banks. Some state attorneys general and federal agencies are pushing for banks to pay more than $20 billion in civil fines or to fund a comparable amount of loan modifications for distressed borrowers.



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