The federal government and multiple state governments are reportedly closer to reaching a settlement with the five largest banks who allegedly engaged in fraudulent mortgage lending practices.  Under the agreement, officials anticipate that Bank of America, Citigroup, Wells Fargo, J.P. Morgan Chase, and Ally Financial will help fund loan modifications for homeowners and will agree to standards for foreclosures.

Many states, including New York, Massachusetts, Delaware, and California, have expressed concerns that the proposed settlement provides inadequate relief for homeowners and requires states to agree to too broad of a release from liability without allowing for sufficient investigation.  The California Attorney General has rejected the proposed settlement and the Massachusetts Attorney General is preparing to do the same, hoping to obtain a more favorable result.

Any agreements would not extinguish the rights of county or state governments to sue to recover unpaid mortgage filing fees.  Many banks circumvented county and state recording processes in order to avoid paying filing fees.  Instead, banks utilized privately run electronic recording systems such as Merscorp Inc.’s Mortgage Electronic Registration Systems Inc. which allows mortgages to be transferred freely without recording the transaction so long as the note is transferred to or from a MERS member.  The Dallas County District Attorney has already filed a suit to recover the filing fees the county was allegedly defrauded of under this scheme.  Several other localities have filed similar suits or anticipate doing so soon.