State Attorneys General Fight Lending Abuses
The banking industry faces hundreds of lawsuits across the country over accusations of abuses in lending. As such, state attorneys general have teamed up to try to negotiate a national settlement with the 14 largest banks and mortgage servicers.

Still in draft form and far from final agreement, the states’ attorneys generals are asking for billions of dollars in penalties from banks, and additional billions of dollars in principal reductions for distressed and underwater borrowers, The Washington Post reports. They also are calling for changes in the lending system for struggling home owners.

In the draft settlement agreement, among their requests are that:

-- The dual-track system that some lenders use would be banned. A “dual track” system is when lenders negotiate loan modifications while also initiating foreclosure procedures.

-- Servicers would be banned from advising customers who have a history of making on-time payments to default, or discouraging them from seeking the assistance of nonprofit counseling organizations. At a recent congressional hearing, borrowers testified that when they asked banks to modify their loans, lenders would advise them to stop mortgage payments for two to three months so that they would be eligible for changes to their loan terms. They would later be sent foreclosure notices, however, because they were then in default.

-- Servicers will have to provide mortgage customers with a "single point of contact," along with a name and contact information, for their loan modification requests. Many borrowers have complained that they struggle to speak to the same person to discuss their case, which can lead to misunderstandings, missed deadlines, and even foreclosure.

Source: “Attempt Afoot to Rein in Lenders’ Shabby Behavior,” The Washington Post (March 19, 2011)