OPEN LETTER TO PRESIDENT BARACK OBAMA ON MULTI-STATE ATTORNEYS GENERAL SETTLEMENT TO FORECLOSURE FRAUD TO: CC: President Barack

Obama Secretary of Treasury Timothy Geithner Secretary of Housing & Urban Development Shaun Donovan Iowa Attorney General Tom Miller November 1, 2011

DATE:

Dear President Obama, We are writing to express our deep concern over a draft of the multi-state Attorneys General settlement to the foreclosure fraud scandal that the Administration appears to be strongly advocating. Recent press reports outline what appear to be some deeply troubling elements for homeowners and communities in the proposed settlement. First, a settlement along the lines reported would fail to pass a fundamental test of fairness. Provisions in the draft settlement appear to give banks broad immunity beyond the narrow scope of the investigation, specifically for their illegal behavior in peddling toxic mortgages to millions of families during the height of the boom. The banks widespread fraudulent behavior from origination to securitization to foreclosure sparked the foreclosure crisis that has robbed 6 million families of their homes and threatens to take at least another 6 million homes before it is over. In addition, they have stripped trillions of dollars in homeowner wealth from families, plunged one out of five homeowners into negative equity, and sparked a broader financial crisis that has destroyed tens of millions of jobs. American homeowners face $700 billion in negative equity as a direct result of the financial crisis. And yet the current settlement will allow the banks to avoid facing responsibility for the very behavior that caused this horrible chain of consequences in exchange for just $20 to $25 billion a very small amount of money relative to the size of wrongdoing. It does not even require banks to admit to any wrongdoing at all.

Second, the proposed settlement fails to help those most impacted by bank fraud, especially in communities of color that big banks targeted with predatory loans. Although bank fraud has drained wealth from working families from all racial and ethnic backgrounds, according to the Pew Research Center the bursting of the housing market bubble in 2006 and the recession that followed from late 2007 to mid-2009 took a far greater toll on the wealth of minorities than whites. The Federal Reserve recently assessed a record $85 million fine against Wells Fargo for falsifying income information in mortgage applications and steering otherwise prime borrowers into high-cost subprime loans, a common practice with borrowers of color during the boom. Countrywide (now Bank of America) has been the target of multiple lawsuits alleging racial discrimination in lending. Yet the current settlement terms fail to force the banks to clean up the havoc they wreaked in these specific communities. In addition, families who have already lost their homes to foreclosure fraud are currently offered little assistance in the current settlement. These families who have paid the price for the banks illegal actions with their homes and life savings must not be treated as second-class citizens in a settlement. Third, the scope of the proposed settlement is far too narrow. Even a radically improved settlement will leave out 50% to 60% of homeowners nationally and the bulk of low to moderate-income borrowers whose loans are owned or guaranteed by Fannie Mae, Freddie Mac or the Federal Housing Administration. The Administration cannot allow to the Federal Housing Finance Agency (FHFA) Fannie Mae and Freddie Macs regulator and conservator to go unchallenged in their stubborn refusal to consider principal reduction as being in the interest of both taxpayers and borrowers. By focusing on short-term calculations and a complete disregard for the housing market and economy as a whole, the current leadership at FHFA is not only damaging the whole economy, it is not acting in the true best interests of taxpayers who have supported and propped it up. It is clear that there is a need for new leadership at FHFA. The Administration must use all of its power to achieve that both in the long-term by working with the Senate to confirm a new director and in the short-term by using its administrative power to appoint a new acting head. FHFA must be made a party to the settlement and the penalties and principal reduction amounts raised accordingly. Finally, it is difficult to see how the proposed settlement will make a meaningful difference on the ground. Past settlements have shown time and time again that the banks will take every opportunity to game, evade and ignore terms they have agreed upon if not watched closely and constantly. For example, despite big promises when it was announced, the 2008 Countrywide settlement failed to make a meaningful for everyday people. There are no clear signs that the current settlement will be any different.

As a nationwide coalition of homeowners, clergy, small business owners and community leaders dealing with the fallout of the foreclosure crisis, The New Bottom Line believes that we cannot afford another settlement or new program that makes headlines, gives the public a false sense of confidence that we have dealt with the issue, and yet continues to make little significant difference. At a time when people across the U.S. are taking to the streets to protest Wall Streets greed and refusal to help struggling Americans get out of under crushing debt, it is time to push for a settlement that fits the scope and size of the crime. With the negotiations reaching a critical phase, we reiterate what a successful settlement will look like to the majority of Americans: 1. No release of claims beyond the very specific conduct that has been investigated. This is a settlement on robo-signing and fraud and misconduct in mortgage servicing. It is completely and totally unacceptable for claims to be released on origination, process, securitization or chain of title fraud and abuse, especially in exchange for such a tiny settlement amount. 2. Restitution for families who have already lost their homes in this abusive, criminal and fraudulent system. These families who have paid the price for the banks illegal actions with their homes and life savings cannot be treated as second-class citizens in a settlement. 3. An overhaul and reform of industry servicing practices including banning banks from continuing to foreclose on families while they are pursuing a modification, requiring mandatory modifications in cases where it would be good for homeowners and investors, requiring banks to give homeowners a single point of contact, etc. 4. Strict, independent and robust enforcement and accountability of all parts of the settlement, including detailed reporting on compliance by race and census tract. Past settlements have shown time and time again that the banks will take every opportunity to game, evade and ignore terms they have agreed upon if not watched closely and constantly. 5. Widespread and fairly applied principal reductions, especially in communities hardest-hit by the crisis. While the entire nation is suffering as a result of the foreclosure crisis, communities of color have been especially hard hit. It is clear that there must be specific benchmarks, not just incentives, for both principal reductions and restitution in communities of color that have been hardest hit. One

way to achieve this is requiring that 50 percent of all principal reductions and restitution awards occur in census tracts with 1.2 times or greater (20 percent or more above) the county average foreclosure rate and have 1.75 times or greater the state's foreclosure rate. We urge you to pay close attention to these concerns that we believe are shared by the majority of Americans who feel that the big banks continue to evade responsibility for their role in the economic crisis. Sincerely, The New Bottom Line

Lee Ann Hall Alliance for a Just Society

Rev. Lucy Kolin PICO National Network

Rev. Dr. Eugene Barnes National Peoples Action