Counting Down to 2015: Banks Looking to the Future to Bring Back the Past

The National Mortgage Settlement was enacted not just to punish the wrong-doing of the nation’s five biggest lenders, but to create new safeguards to regulate the home buyer’s market. The deal involved Wells Fargo, Bank of America, Citibank, JP Morgan Chase, and Ally Financial to pay an unprecedented $24 billion to fund government programs like the Home Affordable Mortgage Program, or HAMP.

While the effectiveness of these government programs funded by the settlement is being debated, the policies put in place by the settlement are due to expire in 2015. The Huffington Post reports that legal agreements among the banks, and the states and federal government hold for only three-and-a-half years. Good news for the banks. Bad news continues for those facing foreclosure.

But there’s a way around the expiration of the Federal mandates. California Attorney General Kamala Harris, for example, is attempting to make permanent some of the National Mortgage Settlement's most important "servicing standard" reforms by writing them into state law. "The success of the national mortgage settlement in terms of reforms is laudable, but it only lasts for three years," Harris said. "We need to make the fixes permanent." More states should follow California’s proactive idea.

Lenders, however, are fighting back, spending a reported $500,000 in lobbying efforts in the State of California alone during the first three months of 2012. While this display of monetary “shock and awe” tactics seems unnecessary, Lenders are willing to be it all in the high stakes game of politics.

California’s proposed bill, “Homeowner Bill of Rights”, if enacted, would require all banks and servicers in the state to adopt the National Mortgage Settlement reforms. "Dual-tracking," a procedure by which banks would pursue foreclosure proceedings against homeowners, who, at the same time, are pursuing a trial loan modification, prohibited in the Settlement, would be illegal according to the proposed legislation. Another proposed law that mimics the Settlement would require financial institutions to establish a single point of contact for troubled borrowers -- a response to widespread complaints from homeowners that when they called for help, they never could speak to the same person twice.

The Federal Consumer Financial Protection Bureau plans to propose rules this summer that will protect mortgage borrowers "from being hit by costly surprises or getting the runaround from their mortgage servicer." The agency will finalize those rules in January, it said. Republican presidential nominee Mitt Romney has said that if he were elected, he would try to dismantle the Dodd-Frank Act that created the agency, though that effort would likely face long odds in the U.S. Senate.

With banks spending millions of dollars in an effort to comply with these new regulations, on top of the $24 billion hit they took this past February, lenders are looking for an escape route. Although 2015 is still a long ways away, reminiscing about the lending industry before the national mortgage settlement means looking to the future.