By Christina Rexrode
Mortgage investors expressed concern they will get stuck with
part of the bill if Citigroup Inc. and Bank of America Corp. settle
with the Justice Department.
In a letter to Attorney General Eric Holder, the Association of
Mortgage Investors asked that the banks receive credit in their
potential settlements for modifying only the loans owned by banks,
not loans owned by investors.
"We stand firmly behind the principle that parties sued by the
government or third-parties should not be able to settle with
assets they do not own, namely other people's money," wrote the
AMI's executive director, Chris Katopis, in a letter the
organization released Tuesday.
AMI, whose members include investment firms DoubleLine Capital,
AllianceBernstein and Angelo, Gordon & Co., has tried to get
traction in previous settlement negotiations, including J.P. Morgan
Chase & Co.'s $13 billion agreement in November.
The four-page letter, dated June 20, doesn't specifically
mention the DOJ's potential settlements with Bank of America and
Citigroup, but both banks are in the middle of negotiations.
Bank of America has offered to pay some $12 billion to settle
the DOJ accusations, though the government is demanding billions
more, according to people familiar with the situation, The Wall
Street Journal reported this month. The Justice Department has
demanded some $10 billion from Citigroup, though the bank has
argued it should pay far less, according to people familiar with
the negotiations, the Journal also reported.
Any settlement likely would include both a cash payment and
"consumer relief," where the banks get credit for actions such as
forgiving mortgage principal or reducing interest rates for
struggling homeowners.
When J.P. Morgan settled with the Justice Department for $13
billion in November, $4 billion of that was in consumer relief. In
those formulas, J.P. Morgan received partial credit for modifying
mortgages owned by other investors, and more credit for modifying
mortgages it owns.
In the National Mortgage Settlement of 2012, where banks
including Bank of America, Citigroup, J.P. Morgan and Wells Fargo
& Co. agreed to pay a combined $25 billion, the banks also got
credit for modifying loans they didn't own but still serviced.
According to the latest tally from the Office of Mortgage
Settlement Oversight, 39% of Bank of America's earned credit came
from modifying investor-owned loans, compared with just 0.04% of
Citigroup's earned credit.
Nick Timiraos and Devlin Barrett contributed to this
article.
Write to Christina Rexrode at christina.rexrode@wsj.com
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