Conyers Encourages Michigan Attorney General to Reject Flawed Nationwide Mortgage Settlement

(WASHINGTON) – Today, Representative John Conyers, Jr. (D-MI) sent a letter to Michigan Attorney General Bill Schutte encouraging him to reject a proposed nationwide settlement between state attorneys general and the Nation’s five largest banks concerning possible fraudulent mortgage origination and servicing practices detrimental to homeowners across the country. The deadline for the attorneys general to accept the terms of the settlement on behalf of the states is this Monday.


February 3, 2012


The Honorable Bill Schutte

Office of the Attorney General

G. Mennen Williams Building, 7th Floor

525 W. Ottawa St.

P.O. Box 30212

Lansing, MI 48909


Dear Attorney General Schutte:


I am writing to strongly encourage you to reject the proposed settlement between state attorneys general and the Nation’s five largest banks – Bank of America, JPMorgan Chase, Citibank, Wells Fargo, and Ally Financial – on the grounds that the settlement inadequately addresses the harm they caused to Michigan homeowners through illegal and fraudulent mortgage origination and servicing practices.


Although the actual details of this settlement have yet to be publically disclosed, news reports suggest that the tentative agreement’s terms would only involve $25 billion in total compensation, of which only $17 billion would go towards loan modifications for homeowners. This is a paltry sum when compared to the scope of the foreclosure crisis in our state. Over 35 percent of all homeowners in Michigan owe more on their mortgages than their homes are worth. The settlement would have to provide over $19 billion in relief to Michigan homeowners alone. This settlement does not provide enough funds to cover damages for our state, let alone the entire country.


I also find it troubling that under the proposal, banks may receive greater credit for assisting homeowners when they modify the mortgages of borrowers who owe less than 175 percent of the value of their homes. These incentives discourage banks from assisting borrowers who are severely underwater – the very people hit the hardest by the illegal behavior the settlement aims to rectify. Furthermore, in exchange for this onetime payment to homeowners, the proposed settlement would likely release the five banks from liability on the origination and servicing of trillions of mortgages. This could prevent the state from collecting hundreds of billions of dollars in possible compensation owed to homeowners devastated by the foreclosure crisis.


Moreover, I find it surprising that top law enforcement officials across the country would even consider agreeing to such broad waiver of liability after being presented with clear evidence of widespread fraud. For example, Delaware Attorney General Beau Biden has stated that a cursory examination of foreclosures in his state showed banks lacked the proper legal paperwork necessary to legally foreclose on a house in one out of four foreclosure proceedings.


This proposed settlement may not do enough to stop ongoing origination and servicing fraud. According to a Reuters article from February 1, the settlement proposes that state banking regulators take the lead in enforcing the settlement, with North Carolina’s banking commissioner playing a lead role. But state regulators have an even worse track record than federal regulators when it comes to holding banks accountable. According to a recent study by the National Bureau of Economic Research:


Federal regulators are significantly less lenient, downgrading supervisory ratings about twice as frequently as state supervisors. Under federal regulators, banks report higher nonperforming loans, more delinquent loans, higher regulatory capital ratios, and lower [return on assets]. There is a higher frequency of bank failures and problem-bank rates in states with more lenient supervision relative to the federal benchmark.


As long as fraud is pervasive and ongoing, we should not entrust the future well-being of Michigan’s homeowners to state bank commissioners who have historically lacked the will and capacity to police these powerful financial entities.


For all of the above reasons, I believe this proposed settlement will result in nothing more than another bailout for big banks. A settlement that fails to provide just compensation for hundreds of thousands of Michigan homeowners is not an agreement worth considering. I ask for full and fair consideration of the concerns expressed in this letter, consistent with applicable law, rules, and regulations.



Congressman John Conyers, Jr.