Obama Administration And Banks Near Deal On Mortgage Fraud Legal Liability

There are two clever features of the deal, but neither look intended to benefit ordinary citizens. One is that the deal throws some funding at chronicall­y cash stressed mortgage counselors­. They are thus certain to voice approval of the pact. The other is (per the FT story) the deal’s “most favored nations clause” is designed to reduce the bargaining leverage of any AGs that go their own way. It means that any servicer will have the incentive to fight hard against giving any state a better deal because it will automagica­lly trigger improved terms across the states that signed on to the Federal deal. But this may have interestin­g perverse effects, since banks that refuse to settle with breakaway AGs will ultimately have damages awarded by a court. That means longer and most costly fights by the states, but in most cases, ultimately bigger awards (frankly, the fact set is so bad that all the state AGs need to do is focus on fairly conservati­ve legal theories to have good odds of scoring big wins).

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