Brown: Foreclosure Agreement to Provide an Estimated $335 Million to Help Ohio Homeowners

Foreclosure Fraud and Homeowner Abuse Act, Would Expand Protections for Investors and Homeowners, Increase Access to Foreclosure Mitigation Services

WASHINGTON, D.C. – Following today’s settlement agreement with the nation’s largest banks after last year’s robo-signing crisis, U.S. Sen. Sherrod Brown (D-OH) welcomed the news but called for strong congressional oversight and action and urged the swift passage of legislation to prevent future servicer fraud and errors, improve foreclosure counseling and prevention, and reform oversight of mortgage-based investing.

“Too many Americans were steered into unfair mortgages by fast-talking brokers, then illegally foreclosed upon by Wall Street Banks cutting corners. Today’s settlement is an important victory for homeowners and communities devastated by the housing crisis. But it only scratches the surface of problems with the housing industry that need to be addressed. I look forward to hearing more detail, such as how the investments of Ohio’s public pension funds, will be affected.  I intend to continue working with my Senate colleagues in overseeing enforcement of the settlement, and to reform the broken mortgage servicing system.”

According to the Ohio Attorney General, Ohio will receive an estimated $335 million of the $26 billion settlement, including an estimated:


  • $102 million for Ohio borrows seeking direct relief, including loan term modifications,
  • $44 million for Ohio borrowers who were foreclosed on from Jan. 1, 2008-Dec. 11, 2011 as a result of servicer abuse,
  • $90 million in refinanced loans for Ohio borrowers who owe more on their mortgages than their homes are worth,
  • $97 million for the Ohio Attorney General to conduct foreclosure prevention, neighborhood revitalization, and fraud prevention efforts

Brown has led the fight against wrongful foreclosures and unfair practices by Wall Street. Brown is the sponsor of the Foreclosure Fraud and Homeowner Abuse Prevention Act of 2011.  This legislation would expand access to foreclosure prevention services, while increasing protections for homeowners and investors in mortgage-backed securities. Last July, in the wake of reports that banks and mortgage processors have continued forging signatures and submitting false affidavits, Brown wrote to federal regulators urging them to better protect consumers by publicly releasing information related to their settlements with 14 mortgage servicers in order to prevent further illegal practices.

In advance of today’s agreement, Brown urged Administration officials and state attorneys general to hold banks financially accountable for illegal practices and to protect the pensions of Ohio’s workers. In a January letter to Associate Attorney General Thomas Perrelli, Consumer Financial Protection Bureau Director Richard Cordray, U.S. Department of Housing and Urban Development Secretary Shaun Donovan, and Iowa Attorney General Tom Miller, Brown said that mortgage servicers should be required to provide meaningful assistance to Ohio homeowners who lost their homes illegally, but not on the backs of other working Ohioans.

Below is full text of the January letter.

January 19, 2012


The Honorable Thomas Perrelli                    

Associate Attorney General

U.S. Department of Justice

950 Pennsylvania Avenue N.W. 

Washington, D.C.  20530


The Honorable Richard Cordray


Consumer Financial Protection Bureau

1500 Pennsylvania Avenue N.W.

(Attn: 1801 L St.)

Washington, D.C.  20220


The Honorable Shaun Donovan


U.S. Department of Housing and Urban Development

451 7th Street S.W.

Washington, D.C.  20410


The Honorable Tom Miller

Iowa Attorney General

1305 E. Walnut Street

Des Moines, IA  50319


Dear Associate Attorney General Perrelli, Secretary Donovan, Director Cordray, and Attorney General Miller:


As the senior Senator from Ohio and a member of the Senate Committee on Banking, Housing, and Urban Affairs, I am all too familiar with the struggles faced by distressed homeowners, resulting from a pattern of abuse by the largest bank servicers.  My home state experienced 14 consecutive years of increasing foreclosures until 2010, when some of the nation’s largest mortgage servicers instituted a foreclosure moratorium amid reports of widespread legal document forgery.  This issue is at the heart of your 50-state mortgage and foreclosure fraud investigation.  Accordingly, I write today to express my concern based upon recent reports outlining some of the proposed settlement terms.


It is reported that the proposed settlement will include a number of components to address the wrongdoings of Wall Street banks and their affiliated servicers, including a system of mortgage principal reduction based on a credit system.  With more than one in five Ohioans owing more on their mortgage than their house is worth, and Ohioans nearly $16 billion underwater on their mortgages, there is no question that principal reduction can and should be an element of any plan to aid homeowners.[1]  Many of these people are underwater through no fault of their own.  As New York Federal Reserve President Bill Dudley said recently, “[t]his isn’t a moral hazard issue, this is just the bad luck associated with the timing of the purchase and an exceptionally weak jobs market.”[2]  A settlement must provide meaningful, widespread relief to Ohio homeowners.  Unfortunately, the numbers reported in various media accounts fail to meet this test.  The settlement must also redress the injuries suffered by families that have already lost their homes.  Any settlement that fails to achieve these two goals would be insufficient.


A settlement must also impose adequate penalties on servicers who broke the law.  There are reports that the settlement could permit servicers to receive credit for writing down the value of mortgage-backed securities (MBS) owned by investors, without requiring servicers to reduce principal on the mortgages and second liens that they own.[3]  Ohio’s public employee pension funds have significant investments in MBS, and therefore have significant interest in the terms of the settlement.[4]  The reported settlement terms would allow banks to write down the investments of many of my constituents, without sacrificing anything.  And, depending upon the scope, any settlement could potentially preclude these funds from pursuing actions to recoup more than $457 million in losses, allegedly due to credit ratings agencies improperly rating MBS.[5]  Such terms are unacceptable.


Teachers, first responders, law enforcement, and other pensioners and retirees should not be penalized for wrongdoing by Wall Street.  An adequate loss-sharing arrangement would acknowledge the reality that there is no penalty for servicers writing down the value of assets that belong to someone else.  There is also no penalty associated with servicers writing down a portion of their assets – in this case, their second lien holdings – that actually have no value.  It is often in investors’ best interest to reduce mortgage principal, but this settlement must penalize the servicers who broke the law.


As Governor Sarah Bloom Raskin of the Board of Governors of the Federal Reserve said recently, financial penalties “remind regulated institutions that noncompliance has real consequences; the law is not a scarecrow where the birds of prey can seek refuge and perch to plan their next attack.”[6]  It thwarts the objective of punishing servicer wrongdoing and deterring future robosigning, predatory lending, consumer deception, and other violations by permitting wrongdoers to settle exclusively with “other people’s money.”  State attorneys general tried this approach in a 2008 settlement with servicer Countrywide—it did not work.


Accordingly, mortgage servicers must not be able to settle these claims using investments held by state pension funds, retirement systems, and universities.  The penalty for bank servicer misconduct must come from the bank’s balance sheets, not other sources of mortgage capital.  The proposed principal reduction program must focus on banks settling with their own money, rather than shifting their financial liability to Private Label Securities (PLS) trusts.  And the net present value (NPV) model for calculating the value of a mortgage modification must be publicly disclosed, transparent, and based upon reasonable economic assumptions (e.g., the correct discount rate), to ensure that principal is being reduced when it is financially appropriate.


Mortgage servicers must be required to assist homeowners who have lost their homes illegally or are underwater through no fault of their own.  But the remedies and penalties must be meaningful, and not come solely from the retirement savings of middle class workers—some of whom may have already lost their homes as result of the illegal practices that the settlement is meant to address. 


This is a critical issue for Ohioans who have been victimized by widespread foreclosure fraud and will be affected by any settlement, both as homeowners and as investors in MBS portfolios managed by public pension and retirement systems.  Your efforts to ensure a fair and transparent settlement will have lasting effects for a generation and establish a very important legal precedent.


Thank you for the opportunity to share my views on this important matter. 








                                                            Sherrod Brown

                                                            United States Senator





Cc: The Honorable Mike DeWine, Ohio Attorney General




[1] See Ohio Organizing Collaborative & New Bottom Line, Ohio Underwater: How President Obama Administration Can Fix the Housing Crisis and Create Jobs 4 (2011).

[2] William C. Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, Remarks at the New Jersey Bankers Association Economic Forum, Iselin, New Jersey, Jan. 6, 2012.

[3] See Shahien Nasiripour & Kara Scannell, Mortgage Talks Point To Likely Investor Losses, Financial Times, Jan. 6, 2012.

[4] The Ohio Public Employees Retirement System holds $765 million in MBS; the Ohio Police & Fire Pension Fund held $626 million in MBS; State Teachers Retirement System of Ohio holds $50 million in mortgage-backed securities (MBS); and the Ohio Public Employees Deferred Compensation Program holds $39 million in MBS.

[5] See Ohio Police & Fire Pension Fund v. Standard & Poor’s, 09-CV-1054 (S.D. Ohio, 2009).

[6] Governor Sarah Bloom Raskin, “Creating and Implementing an Enforcement Response to the Foreclosure Crisis” 8, Remarks at the Association of American Law Schools Annual Meeting, Washington, D.C., Jan. 7, 2012.

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