In the wake of the mortgage meltdown, state attorneys general have investigated predatory lending practices and brought major lawsuits against lenders and investment banks that securitized mortgages. Here’s a rundown of the biggest crackdowns and what they’ve achieved.
- Perhaps the largest predatory lending settlement in history was reached last October, when the attorneys general of eleven states entered into an $8.68 billion settlement with Countrywide Financial, now owned by Bank of America, for loan modifications and foreclosure relief. The settlement covers approximately 400,000 homeowners in 40 states. However, homeowner advocates criticized the settlement because it addresses only a small segment of loans Countrywide originated: Pay Option Adjustable Rate mortgages and subprime mortgages that were issued between January 1, 2004 and December 31, 2007. There is also concern that Bank of America will not be able to modify all of the loans covered in the settlement because the bank owns only about 12 percent of them, whereas the majority were packaged into securities that are now owned by investor controlled trusts and other financial institutions. As of this past May, Bank of America reportedly had modified mortgages for more than 50,000 borrowers, but some borrowers have seen their monthly payments increase when unpaid fees were added to their loan balances.
- Last November, the state of Ohio settled with the bankrupt lender, New Century Financial Corporation, in a case involving allegations of predatory loan activity. The Ohio state attorney general obtained a moratorium on New Century foreclosures to allow time for state officials to review approximately 400 loans for evidence of predatory activity. Ultimately, 106 borrowers were found to be eligible for loan modifications.
- This past May, as a result of an industry-wide investigation into how mortgage securitizers may have facilitated the issuing of loans that violated Massachusetts’s consumer protection laws, that state’s attorney general reached a $60 million settlement with Goldman Sachs; $50 million of the settlement will go toward modifications of mortgages that the investment bank had securitized.
- In June, the Massachusetts attorney general also won a precedent setting lawsuit against a Californian bank, the Fremont Investment & Loan, settling for $10 million and obtaining the first court order in the nation that restricted a subprime lender’s ability to foreclose in cases where there was unfair or deceptive loan origination misconduct. Under the court order, about 2,200 of the loans Fremont issued in Massachusetts have been protected and the state attorney general has the right to object to foreclosures where there is evidence of predatory lending activity. Also of significance is that the loans subject to review include those that were sold to Wall Street.