More Trouble for Foreclosure Settlement?

by Simon Lindsay on Foreclosures

It seems like the foreclosure settlement negotiations going on in Washington just can’t catch a break.

Barely a few days since California Attorney General Kamala Harris announced that California is abandoning the sluggish negotiations, Massachusetts Attorney General Martha Coakley announced that she and the state have “lost confidence” in the talks and any resolution that could possibly be reached between 50 states and five of the nation’s biggest home mortgage lenders.

As a result, the AG speculated that she may initiate lawsuits against the lenders that could touch off a slew of legal actions against Bank of America, Wells Fargo, Citigroup, JPMorgan Chase, and Ally Financial.

Needless to say, 50 separate lawsuits against the banks would be the worst-case scenario for the lenders, who are fighting allegations that they – through deliberate malfeasance or pure negligence – committed widespread abuse and fraud with millions of foreclosure cases over the past decade, including robo-signing foreclosures left and right.

I think it’s an open secret that these banks are guilty. The evidence is pretty widespread and open, and the banks themselves haven’t done much to defend themselves – instead focusing more on limiting their liability from future lawsuits as a condition in the negotiations.

Now, they probably wish they had accepted the settlement when it was initially offered a few months ago.

Of course, the negotiations are still technically ongoing, led by Iowa AG Tom Miller, and so far there has not been a mass rush to the courts against the banks. But, dark clouds are looming for the lenders, and the ramifications for the industry could be severe.

Right now, existing supply is far outstripping demand, primarily because most people who would like to buy foreclosures and non-foreclosures simply do not have access to the credit or cash necessary to make a purchase, even at reduced prices. Banks have been reluctant to lend – and to process foreclosures, a different topic altogether – and as a result, the market has not reached stability. Prices continue to fall in many areas as supply continues to rise.

Regardless of what course this entire situation takes, a resolution must be reached sooner rather than later. With Massachusetts’ recent action and possible lawsuit in the near future, maybe such a resolution will be here earlier than what would happen if we continue to stall and bicker.