State Attorneys General Put Pressure on Banks to Modify Mortgages

By Kyle Chezum Updated on 3/8/2011

State attorneys general are putting increased pressure on banks to fix issues remaining with foreclosure procedures.  Several major banks have been accused of violating multiple state laws when processing foreclosures.  Iowa Attorney General Tom Miller called the entire foreclosure system "dysfunctional" and called for sweeping changes to foreclosure standards and guidelines across the industry.

Banks have reacted negatively to the suggested changes, claiming that the government is trying to seize more control over banking practices by implementing the new foreclosure standards.  Banks aren't likely to receive much public support or sympathy, though.  Banks have already received significant criticism for favoring foreclosures over modifications.

The attorneys general hope to enforce changes that will ensure underwater homeowners are treated fairly and given opportunities to remain solvent.  The new standards would prevent banks from foreclosing on a homeowner until after the homeowner has been formally denied a loan modification.  This and other measures may force banks to recognize up to $20 billion in losses.

The changes have never been more necessary.  New data from industry research firm CoreLogic shows that the number of underwater homeowners increased by 3% nationwide during the final quarter of 2010.  The housing sector is as weak as it's ever been, weighed down by $751 billion of negative equity.  Nearly 30% of all mortgage loans are underwater.

Miller expects a final version of the new standards to be complete within just a few months.  Banks have expressed plans to fight the new measures at all costs.  Still, Miller insists that mutual agreement is the ultimate goal.  "We're hopeful that we can reach a resolution that will be good for homeowners and good for the banks in the long run."