U.S. banks to resist loan mods in mortgage probe

* State AGs looking for foreclosure remedies

* Modifications are “line in the sand” for banks – lawyer

* Other potential remedies include fines, moving expenses

By Dan Levine

SAN FRANCISCO, Oct 26 (BestGrowthStock) – U.S. banks being probed
over their foreclosure practices expect to negotiate with state
attorneys general, but they are unlikely to agree to forced
loan modifications, lawyers for lenders said this week.

Big mortgage servicers such as Bank of America Corp
(BAC.N: )and JPMorgan Chase & Co (JPM.N: ) are under the microscope
over the use of “robo-signers” — people who sign hundreds of
affidavits a day.

U.S. attorneys general for all 50 states are jointly
investigating whether bank units that foreclose on bad loans
failed to review documents properly or submitted false
information to evict delinquent borrowers.

Lawyers for big banks say servicers want to be cooperative
with the AGs and clean up their procedures, but they do not
want to be forced into modification programs that come with
huge logistical headaches and limit banks’ ability to handle
delinquent mortgages on a case-by-case basis.

Attorney Andrew Sandler, who represents lenders at
Washington, D.C. firm BuckleySandler, said settlement talks
will get contentious if AGs seek such remedies as loan
modifications.

“That’s where servicers will draw a line in the sand,”
Sandler said on Sunday.

Other lawyers involved in the AG probe also said banks
would resist a settlement based on loan modifications.
Alternatives could include fines or even a fund to help
foreclosed families relocate.

Any settlement is likely to be complicated by the number of
states involved and the position of individual banks.

Richard Gottlieb, a Chicago-based Dykema attorney who also
has lender clients, argues that servicers do not have the
authority to force modifications beyond what is allowed in
contracts with investors.

“The servicer doesn’t have the right to modify a loan, the
owner does,” Gottlieb said, adding that modifications are
irrelevant if the house is vacant.

U.S. banks to resist loan mods in mortgage probe