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Iowa AG Miller Breaks Promise, Calls AG Investigation “Inherently Civil” and Not Criminal

This is a very disappointing and two-faced statement from Iowa Attorney General Tom Miller. It wasn’t even a month ago that he met with foreclosure victims and homeowner advocates and pronounced, “We will put people in jail.” Now, according to this article, no, we won’t.

“What we’re looking at is five separate agreements with the five largest servicers,” Miller said. “We’re still a ways away” from reaching agreements, he said. “We’re working very hard to figure out what should be in the settlement.” […]

The group isn’t pursuing a criminal investigation, Miller said. “Our focus is to reform the servicing process and that’s inherently civil, not criminal,” he said.

In an interview last week, Miller said the group might consider matters including whether servicers are charging borrowers appropriate fees.

“We hear stories far too often of it taking months before servicers get back to people, or they lose documents and that they don’t modify a loan when it makes sense,” Miller said last week.

There is nothing wrong with reforming the servicing process, in and of itself. It’s just that you’ll never be able to do that without showing clearly that criminal sanctions on the servicers themselves, reaching all the way to the top, are the appropriate response to criminal behavior. I know we don’t really have a rule of law in this country at a certain level of income, but if we did, you would simply have to apply it in cases where banks bilked people out of their homes through servicer-driven defaults, or where they charged outrageous rates for forced-place insurance to jack up their own fees, or where they broke into occupied homes not even in default and changed the locks. These are simply criminal actions; you’d have to be willfully blind to consider them “inherently civil.”


What Miller’s talking about is fine as far as it goes. The proposed resolution would ban dual-track, where servicers negotiate on a loan modification and seek foreclosure at the same time. It would create a general fund for foreclosure victims who were wrongfully evicted. It would seek to reform the loan modification process by mandating workouts with borrowers who have a certain ability to pay, including introducing principal reductions as a remedy. I don’t have a problem with any of this. But without criminal probes, it’s not really backed up by anything. Why would there be follow-through on the part of the servicers if they can just renegotiate a future settlement? We’ve seen in previous settlement cases that the servicers just don’t follow the guidelines, leading Attorneys General or regulators to sue again. There’s only one way off the merry go-round, and that’s with criminal sanctions.

As one of Yves Smith’s commeters points out, you already have grand juries impaneled to investigate the criminal fraud from foreclosure mills, who the servicers basically hired. Civil actions at this point are basically inadequate.

Needless to say, this is compounded by Miller promising the exact opposite approach to advocates just weeks ago. The AG investigation, if this is the track, could end up creating some nice newspaper articles, but result in nothing close to an actual reform to servicer abuse. Keep in mind that Miller’s name was floated to be the first head of the Consumer Financial Protection Bureau. I suspect that making nice with an Administration averse to “looking backward” could have something to do with this.

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David Dayen

David Dayen