The California Attorney General has pulled out of national settlement talks with the Banks over unlawful mortgage servicing and foreclosure practices. Download California AG 093011 Mortgage Letter. In her letter, she mentioned "Good Faith," or lack of it, three times.
The New York Attorney General has raised concerns during the talks. He was immediately removed from the negotiations.
These developments have not gone unnoticed in the popular press or in blog posts. See, e.g., Louise Story, "California Quits States' Talks With Banks on Mortgages" p. B1, col. (New York Times Nat'l ed., "Business Day" Section, Saturday, October 1, 2011); Alejandro Lazo and Nathaniel Popper, Post on "Money & Company" Blog on Los Angeles Times Online, Friday, September 30, 2011: "California Breaks From 50-State Probe Into Mortgage Lenders [Updated]"; Ruth Simon and Nick Timiraos, "California Pulls Out of Foreclosure Talks" (Wall Street Journal Online, Saturday, October 1, 2011); Rick Daysog, Post on "CapitolAlert" Blog on Sacramento Bee Online, on Friday, September 30, 2011: "California Pulls Out of Nationwide Wrongful Foreclosure Settlement".
However, not many of these reports put these developments in the context in which they occurred. That is the intent behind this post. It may be a long post, unless you are interested in the reasons these things happened and then the time it takes to understand the background will, I think, be well spent.
Putting it all in perspective: The context.
50+ State Attorneys General (counting the chief legal officers of the District and of the U.S. territorial possessions) have been in national settlement talks with the "Banks". The subjects of their negotiations have been unlawful foreclosure practices and mortgage servicing.
The Banks have apparently already agreed to change foreclosure practices that they pursue or that "mortgage servicers" pursue in their names. "Good progress has been made, particularly with respect to identifying common-sense reforms to mortgage servicing and foreclosure practices." California Attorney General 09.30.11 Letter, supra, at 1.
But the Banks want more.
The Banks have expanded their own demands beyond unlawful mortgage servicing and foreclosure practices. They want immunity from mortgage securitizations.
The Banks want the State AG's to agree to confer immunity upon the Banks if the Federal Government, any departments of State Governments, or individuals sue the Banks for damages allegedly caused by the Banks' mortgage securitizations. See the newspaper reports and blog posts linked above.
Some Attorneys General want these negotiations to include loan modifications to restore a flow of money and stimulate the economy. Loan modifications by or on behalf of the Banks are apparently not on the negotiating table. See California A.G. 09.30.11 Letter at 2: "In return for this broad release of claims, the relief contemplated would allow far too few California homeowners to stay in their homes."
The Banks' demand for immunity from their mortgage securitizations in contrast is on the negotiating table. The Obama Administration position is to take the Banks' money in exchange for the Banks' immunity. This exchange is intended to help restore the economy.
The Obama Administration has been incessant in putting pressure on State AGs who refuse or are reluctant to talk about mortgage securitization immunity for the Banks. The New York Attorney General as one example has been an object of attention from officials in the Obama Administration and in the Federal Reserve System in this regard. E.g., Alan Feuer, "Top Prosecutor Stands Out by Pushing Back" p. 22, col. 1 (New York Times Nat'l ed., Sunday, October 2, 2011); Gretchen Morgenson, "Attorney General of N.Y. is Said to Face Pressure on Bank Foreclosure Deal" (New York Times Online, August 21, 2011).
The experience of settlement negotiations.
Experienced negotiators know that your negotiating counterparties have just told you where they perceive themselves to be most vulnerable when they make such a demand.
That appears to be one of two good reasons why the California AG is exclusively directing the time and resources of her office to investigating things like the role of mortgage securitizations in the mortgage foreclosure crisis. She and other State Attorneys General -- in contrast to the current Federal Department of Justice -- have already been investigating that issue. Two good reasons for removing the constraints of the current national settlement discussions therefore include, first, that investigating this area is where the Banks on the other side of the table do not want you to go, and second, this decision tends to push the Obama officials back.
In actual context, it is clear why the California AG wrote a letter saying that the proposed settlement is "inadequate":
However, despite your diligence and our good-faith effort to reach reasonable terms with the banking industry, there now exists a proposed settlement that is inadequate for California homeowners....
... California was being asked for a broader release of claims than we can accept and to excuse conduct that has not been adequately investigated. In return for this broad release of claims, the relief contemplated would allow too few California homeowners to stay in their homes.
California AG 09.30.11 Letter at 1-2. Many newspaper reporters took this to mean that the contemplated "damages" were inadequate. See the many newspaper reports and blog posts linked above. Damages were never mentioned in this letter. The inadequate relief contemplated in this arrangement was instead mentioned over and over. It is not about the money. It is about Good Faith, or lack of Good Faith, in settlement negotiations.
Once, twice, three times "Good Faith".
I mentioned that the California AG's letter mentioned "Good Faith," or lack of it, three times. The first time was when the AG identified a good faith effort -- by the AGs -- to reach reasonable terms with the Banks.
The second time was to describe the fact that the AGs were negotiating in good faith with the Banks when "recently, at the same time" the Banks' foreclosure actions in California "surged again."
Third and finally, the reforms identified in the talks apparently included enhancing "transparency" and eliminating "incentives to disregard borrowers' rights in foreclosure. Many of these reforms have been identified in the multistate talks, and I hope that in good faith the banks will adopt those reforms immediately." California AG 09.30.11 Letter at 1-2.
And in the end, the love you take is not equal to the deals you make.
The Obama Administration's pressure on State AGs to confer immunity in exchange for an amount of money without investigation, has already been described above.
Good Faith in negotiations contemplates an exchange. It does not mean acceptance without investigation of the counterparty's position. It includes obtaining something of equal value in return for what the other side demands. If the other side of a negotiation is not willing to negotiate in Good Faith, then there really are no negotiations that deserve the name.
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Posted by: Insurance Agency Framingham MA | December 13, 2011 at 01:11 AM