It is being reported that the 50 state Attorney General task force investigating the bank robo-signing scandal is in preliminary settlement talks with major banks such as Bank of America, JP Morgan Chase and Wells Fargo. Whether or not this report is completely accurate, it does appear as though the AGs and the major banks are at the table negotiating. Having negotiated class action settlements, the terms and conditions of the ultimate written settlement agreement is all that matters.

Such settlements usually contain the following components: 1) agreed changes in corporate practices; 2) the establishment of a settlement fund and 3) a claims procedure to make claims against the settlement fund. The most important part to any meaningful settlement under the circumstances is the scope and extent of the pre-settlement discovery conducted by the AGs. What do I mean by that? Prior to any settlement, the AGs will have to perform "due diligence" to confirm what bank practices are broken, what needs to be fixed, who has been affected and what is the best solution to the problem. This is often where the real fight occurs because the banks want to limit the scope of the information they disclose, and the AGs should be pushing for an expanded scope to discovery. The AGs should, and most likley are, demanding whole scale document production from the banks, interviewing and taking statements from ex-employees and pushing to interview or depose key bank employees.

The Iowa Attorney General, Tom Miller appears to have the right perspective when he testified yesterday before the Senate Banking Committee for an overhaul of the entire system for adminstering loans. As we have said here, the servicing industry is dysfunctional and incapable of effectively servicing loans. We have seen and heard about problems with servicers which include ordering the illegal lock-out and trash-out of homes that are not even in foreclosure and collecting on loans that no longer exist. The robo-signing problem is a symptom, or better yet a good example, of how servicers have been ignoring their obligation to comply with the law. We see the same problems with servicers on a daily basis: documents submitted with loan modification applications are repeatedly "lost", borrowers who are current before and after entering into a loan modification agreement are reported as delinquent to credit bureaus, occupied homes are deemed "vacant" and broken into all across the country, homeowners possessions are removed from homes and disposed of without court order or notice both before and after foreclosure has occured, fraudulent or misleading service of process in foreclosure cases, foreclosure while loan modifications are pending and a general inability to answer the most basic questions from borrower such as, "What amount do I need to pay to become current?"

Before any AGs signs off on any settlement, they should personally shadow 5 borrowers as those borrowers attempt to deal with a servicer on a foreclosure, loan modification or payment issue. They might want to block out a big part of their daily schedule for this task and have some reading material ready. The amount of time they will spend on hold as they pass from one unhelpful servicer representative to the next will fill up a good portion of their day.

The Attorney Generals typically do a much better job investigatiing corporate practices than any of their federal counterparts. It all depends on how they choose to define the scope of their investigation and how hard they push the banks.