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Proposed foreclosure settlement draws heat

Federal regulators and attorneys general from all fifty states signed on to a proposed mortgage servicing settlement that was sent last week to several of the larger financial institutions. The proposed settlement is the result of a state and federal investigation of bank mortgage practices after the foreclosure crisis revealed irregularities in how banks processed foreclosures.

Cincinnati bankruptcy attorneys know that halting a home foreclosure is often the impetus for distressed homeowners to seek bankruptcy relief. The proposed mortgage servicing settlement reportedly includes a directive for banks to increase their efforts to keep individuals in their homes, including providing some homeowners with the ability to receive reductions in the outstanding principle balance on their home loans.

Reuters is now reporting that some U.S. House Republicans have raised concerns over the proposed settlement. The House lawmakers reportedly sent a letter to Treasury Secretary Timothy Geithner. The letter reportedly says the settlement is an abuse of power that could harm financial or housing markets.

Reuters reports the letter says the proposal raises "significant concerns about its effect on the financial system." The lawmakers claim in the letter that the settlement raises concerns that "the administration and state agencies are attempting to legislate through litigation."

The U.S. House lawmakers raise concerns over the legal authority that the state and federal agencies have to include the directive requiring principal writedowns without congressional involvement.

In response to the letter, the Treasury Department says the current mortgage servicing system is broken. A spokeswoman from the Treasury Department says "we should work together to establish a stronger set of standards and best practices. The proposed settlement reportedly addresses changes in mortgage servicing procedures, including having the banks provide a single point of contact for distressed homeowners.

The draft settlement also seeks to require servicers to modify home loans if modification would make the loan more valuable to the owners of the mortgage than the mortgage owners would receive from foreclosure.

Source: Reuters, "Update 3-Republicans see power abuse in US foreclosure probe," 9 Mar 2011

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