Illinois Attorney General Urges Tighter Mortgage Servicing Standards Amid Ongoing Mortgage Crisis

Strategic Insights -

Attorney General Lisa Madigan has sent a letter to federal financial regulators, urging them to include critical mortgage servicing standards in an upcoming rulemaking process. The move aims to prevent risky home loans from being sold to investors, a leading cause of the 2008 housing market crash. Madigan's letter, signed by 11 other state attorneys general, calls for regulators to demand tighter mortgage servicing standards while implementing provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Key Takeaways:

  • Attorney General Lisa Madigan and 10 other state attorneys general have sent a letter to federal financial regulators, urging them to include mortgage servicing standards in an upcoming rulemaking process.
  • The Dodd-Frank Wall Street Reform and Consumer Protection Act requires banks and lenders to maintain at least a 5 percent ownership interest in a home loan unless it meets a high safety standard.
  • The act includes an exception for "qualified residential mortgages" that meet a "gold standard" for safe investments, exempting banks and lenders from ownership interest.
  • Federal regulators are writing rules to implement the act, defining the type of mortgages that meet the "qualified residential mortgage" safety standard.
  • Madigan and the attorneys general are asking regulators to include standards for loan servicing in the rules defining qualified residential mortgages.
  • Servicing standards will give potential investors a better idea of how a loan will perform down the road and ensure that banks and lenders aren't allowed to create risky products and sell them off as safe investments.
  • The regulators must ensure that banks and lenders are held accountable for their actions and that homeowners are protected.

Statistics:

  • $8.7 billion: The amount of a nationwide settlement with Countrywide over its predatory lending practices in 2008.
  • 50-state investigation: The ongoing investigation into the nation's largest mortgage servicers for alleged widespread abuses in the foreclosure process, led by Attorney General Madigan's executive committee.
  • 11 states: The number of states represented by the attorneys general who signed the letter to federal regulators.

Sources:

  • Office of the Illinois Attorney General
  • Chicago Tribune