Building Stronger & Safer Communities

Attorneys General Take Action: Real Leadership in Fighting Foreclosures
ACORN Survey and Scorecard June 2008

ACORN Financial Justice Center • Austin King, Director
2609 Canal Street • Suite 500 • New Orleans, Louisiana 70119 • Phone: (504) 267-3750 • Fax: (504) 267-3751

Building Stronger & Safer Communities

EXECUTIVE SUMMARY _____________________________________________________________________________
Many state attorneys general are leading the fight to protect homeowners from joining the flood of Americans losing their homes to foreclosure. Record national delinquency rates are being driven by resetting rates on adjustable rate mortgages, negative amortization loans like payment option ARMs, widespread mortgage fraud, and lending without regard to the borrower’s ability to pay. These delinquency rates, combined with inadequate loss mitigation activity from mortgage servicers and an illiquid market, have produced the record-setting levels of foreclosure in virtually every corner of the country. The most aggressive attorneys general advocating for homeowners in this crisis are using every tool at their disposal, from cutting-edge legal strategies in curtailing predatory lending and equity theft, to advocacy for structural and regulatory improvements, to high-end constituent service that informs homeowners of their options and helps them navigate the system to save their homes. This report, the first effort of its kind, seeks to collect stories of the work that all 51 attorneys general have done, highlight and recommend the best practices and cutting-edge strategies they have employed, and compare their efforts and willingness to engage in solving this crisis and preventing the next one with those of their colleagues around the nation. All told, there were six attorneys general who particularly stood out for their aggressive and creative leadership in solving this crisis: Connecticut Attorney General Richard Blumenthal, Massachusetts Attorney General Martha Coakley, New York Attorney General Andrew Cuomo, Illinois Attorney General Lisa Madigan, Iowa Attorney General Tom Miller, and Minnesota Attorney General Lori Swanson, who all earned an “A+” grade. These attorneys general are actively seeking real data from mortgage servicing companies, pursuing cutting-edge cases against the industry’s bad actors, speaking out on matters of state and federal importance, putting their offices to work for distressed borrowers, cracking down on vulturine rescue scams, and pushing the industry to perform better for their constituents. Many other attorneys general are doing great work and are paying increasing attention to the crisis, devoting additional resources to the issue, and collaborating together more often than in the past. Still other attorneys general, either because of their state avoiding the worst of the crisis so far or ideological barriers, have not yet tuned in and turned the attention of their offices to meeting the challenges faced. ACORN is pleased to see so much progress, and looks forward to working with attorneys general in continuing to pursue justice and protect the American dream of homeownership.

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INTRODUCTION _____________________________________________________________________________________
American families are being squeezed on all sides – at the gas pump, the grocery store, through healthcare costs, and especially in housing costs, long the most substantial piece of the American household’s budget. With resetting interest rates, negatively amortizing loans, plummeting home values, and an illiquid market that severely restricts refinancing availability, the national mortgage delinquency rate has topped 6% of all loans, and 30% of subprime loans. More Americans lost their homes to foreclosure in 2007 than at any time in recent history, and the crisis is only expected to deepen in 2008 and 2009. Currently, 2.5% of all mortgages are in foreclosure, according to the Mortgage Bankers Association. One in 10 borrowers is underwater, owing more money to their lender than their home is worth, and increasingly homeowners are walking away from their homes and sending their keys to their lender in the mail, giving rise to the postsubprime phenomenon of “Jingle Mail.” There is an unlimited supply of blame to go around for the genesis of this crisis, from regulators who were asleep at the switch, predatory brokers that swindled borrowers into bad loans in exchange for higher commissions, lenders who abandoned any semblance of underwriting standards, insurance and ratings agencies that did no due diligence, investors seeking to game the system, and a federal government that approached the crisis with the fortitude of an ostrich. These failures were then compounded by the nearly universal inadequacy of mortgage servicing companies to handle the sheer volume of delinquent mortgages, and some saber-rattling from moneyed investors that slowed down appropriate loss mitigation and other foreclosure avoidance workouts. While Congress and some governors have grabbed headlines for some of their modest reactions to the foreclosure crisis, there is another critical and largely untold story of the innovative and impactful leadership that many states’ attorneys general have demonstrated in their diverse responses to the crises in their states. This report, the first effort of its kind, seeks to catalogue the work that all 51 attorneys general have done, highlight and recommend the best practices and cutting-edge strategies they have employed, and compare their efforts and willingness to engage in solving this crisis and preventing the next one with those of their colleagues around the nation. ACORN appreciates the willingness of the vast majority of the state attorneys general and their staffs to engage with us on this project and tackle the issue. The reactions that attorneys general have had to the current crisis range from total inaction to all-out efforts using the full complement of available resources to protect borrowers and reform the current system to prevent another crisis in the future. A questionnaire from ACORN distributed to all 51 offices focused on nine issue areas in which some attorneys general have acted to protect borrowers and enact reforms, from simple constituent service like establishing a 1-800 line for distressed borrowers, to legal strategies like seeking preliminary injunctions against foreclosures sought by companies that engaged in widespread predatory lending and advocacy roles like using the bully pulpit to advance legislative protections at the state and federal level. The questionnaire further sought a summary of any and all actions that the office had taken outside of the scope of the nine questions, which resulted in a few inches-thick binders of information from some of the field’s leaders. The coming pages include the 51-state scorecard, a discussion of findings including highlights of some best practices from the front lines, a fuller explanation of methodology, and an appendix with the full questions.
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ACORN Foreclosure Questionnaire
J u n e 2 0 0 8

s rs on e es cti we ov ur te s pr rro ro lo c p im bo r ls s m re o oi ng ua ed fo or rm st rv di ss ef fo vid st er se s re di len in yr tre re m vic s r in u tc te ga ry IT ta di se or ta up to or fa ED da g or ll f kr da es ef lie g CR ef rin re at at ha an re in n c c A p b l su ic eli vo vo wn TR rv d. d. ga es Se Le Fe Pip Fe To Pr Ad EX Ad

State Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington Washington, DC West Virginia Wisconsin Wyoming

Attorney General Troy King Talis Colberg Terry Goddard Dustin McDaniel Jerry Brown John Suthers Richard Blumenthal Beau Biden Bill McCollum Thurbert Baker Mark Bennett Lawrence Wasden Lisa Madigan Steve Carter Tom Miller Stephen Six Jack Conway Buddy Caldwell Steven Rowe Doug Gansler Martha Coakley Mike Cox Lori Swanson Jim Hood Jay Nixon Mike McGrath Jon Bruning Catherine Cortez Masto Kelly Ayotte Anne Milgram Gary King Andrew Cuomo Roy Cooper Wayne Stenehjem Vacant/Interim Drew Edmondson Hardy Myers Tom Corbett Patrick Lynch Henry McMaster Larry Long Robert Cooper Greg Abbott Mark Shurtleff William Sorrell Bob McDonnell Rob McKenna Linda Singer Darrell McGraw J.B. Van Hollen Bruce Salzburg

Party R R D D D R D D R D R R D R D D D D D D D R D D D D R D R D D D D R D D R D R R D R R D R R D D R D

1 0 0 2 2 2 2 2 – – 2 0 1 2 2 2 – 1 0 0 2 2 2 2 2 2 0 0 1 – 2 1 2 2 0 – – 2 0 0 0 0 2 2 2 0 1 2 0 2 2 –

2 0 0 2 2 2 0 2 – – 1 0 2 2 1 2 – 2 0 0 2 2 1 2 2 2 0 0 1 – 1 2 2 2 0 – – 2 2 0 0 0 2 1 2 0 0 2 1 2 1 –

3 0 0 1 1 1 0 2 – 0 2 0 0 2 1 2 – 1 0 0 2 2 0 2 2 0 0 0 0 – 0 2 2 1 0 – – 2 0 0 0 0 0 0 1 0 0 1 0 1 0 –

4 0 0 2 2 2 2 2 – 2 2 0 0 2 2 2 – 2 0 0 2 2 0 2 2 2 0 0 1 – 2 2 2 2 0 – – 2 0 2 0 0 2 2 2 0 1 2 0 2 1 –

5 0 0 2 1 2 2 2 – 2 2 0 0 2 0 2 – 2 0 0 2 2 0 2 2 2 0 0 0 – 1 2 2 2 0 – – 2 0 0 0 0 2 1 2 0 0 2 0 2 1 –

6 0 0 1 2 1 0 2 – 0 2 0 0 2 1 2 – 1 0 0 2 2 0 2 2 0 0 0 0 – 0 2 2 2 0 – – 2 0 0 0 0 0 0 1 0 0 1 0 1 0 –

7 0 0 2 2 2 0 2 – 2 2 0 1 2 2 2 – 2 0 0 2 2 2 2 2 2 0 0 2 – 2 2 2 2 0 – – 2 0 2 0 0 2 2 2 0 0 2 1 2 1 –

8 0 0 1 1 1 1 2 – – 2 0 0 2 2 2 – 2 0 0 2 2 1 2 2 2 0 0 2 – 0 2 2 0 0 – – 1 0 0 0 0 0 2 2 0 0 2 0 1 1 –

9 0 0 2 2 2 1 2 – 2 2 0 2 2 1 2 – 2 0 0 2 2 0 2 2 2 0 0 2 – 2 2 2 2 0 – – 2 0 2 0 0 2 1 2 0 2 2 1 1 1 –

10 0 2 6 5 6 2 7 – 3 5 2 5 7 4 7 – 5 0 2 4 7 4 7 3 4 2 0 3 – 5 5 7 6 0 – – 5 2 4 2 2 4 3 5 2 1 4 5 1 2 –

Total Grade 0 2 21 20 22 10 25 – 15* 20 2 11 25 16 25 – 20 0 2 22 25 10 25 21 18 2 0 12 – 15 22 25 21 0 – – 22 4 10 2 2 16 14 21 2 5 20 11 15 10 – F F A AA CA+ Inc. BA F C A+ B A+ Inc. AF F A A+ CA+ A B F F C Inc. BA A+ A F Inc. Inc. A F CF F B C+ A F D AC BCInc.

SCORING KEY: Partial Credit - 1 point Full Credit - 2 points Extra Credit - 0 to 7 points (See Methodology section for full explanation)
Notes: Florida score based on proportion to score quantities. See Methodology section for full explanation.

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Building Stronger & Safer Communities

Distribution of foreclosure grades from ACORN scorecard
This chart shows the distribution of grades from the ACORN scorecard. As evident, more than a third of of those offices that received a grade were in the “A” range, with well more than two-thirds of offices receiving passing grades. While Democrats tended to fare better in regards to their work on foreclosures, a number of Republicans stood out by earning “A”s and “B”s, and a number of Democrats received “F”s.


Total 18 16

Democrat Republican


Total 8 Total 6

Total 12

4 2 3

5 Total 1 1 4









Note: Chart does not include the six offices that received an “Incomplete” grade.

Distribution of grades based on state’s level of foreclosure activity
This chart shows how each quintile of states scored when grouped by level of foreclosure activity. As evident, states with high rates of foreclosures tended to have attorneys general much more engaged in the issue than those states that have mostly escaped the foreclosure crisis. ACORN predicts that as the crisis continues to spread and affect more states, more and more attorneys general and their offices will train their fire on foreclosures and improve on this measure. Rates of foreclosure provided bywww.

GRADE Top ten foreclosure rates Next 10 states Middle 10 states Next 10 states Bottom ten foreclosure rates

A 5 3 5 3 2

B 1 4 0 0 1

C 3 2 2 0 1

D 0 1 0 0 0

F 0 0 1 5 6
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Building Stronger & Safer Communities

FINDINGS ______________________________________________________________________________________________
While the responses of attorneys general to the current foreclosure crisis range widely, it is clear that the interest and attention paid to the topic has grown rapidly in the recent past, and that the best practices of some attorneys general are increasingly being replicated. The vast majority of attorneys general are aware of the crisis and engaged in some sort of response, though too few have been willing to stake out aggressive leadership and advocacy roles. This report’s findings on the questionnaire’s topics and responses are organized into four categories below: interstate cooperation and mortgage servicing data, constituent services, advocacy roles, and legal strategies. Within all of these arenas, there are attorneys general doing stellar work, and many opportunities to continue to grow and evolve new strategies for solving different parts of the current crisis.

It is clear that there is an accelerating amount of interstate cooperation and coordination, which will be required to protect homeowners and lead the way out of the crisis. That certain attorneys general have taken little interest or action in addressing the foreclosure crisis is in some cases attributable to their state and constituency largely escaping the worst of it (for now), and in other cases seems to stem from an ideological predisposition toward a laissez fair approach to the financial institutions and major companies involved. Among the most commendable multi-state efforts currently underway is the bipartisan State Foreclosure Prevention Working Group, which, though it has benefited from the collaboration and efforts of many, is particularly indebted to the leadership of Iowa Attorney General Tom Miller. The attorneys general from Arizona, California, Colorado, Iowa, Illinois, Massachusetts, Michigan, New York, North Carolina, Ohio, and Texas fill out the Working Group, along with the New York and North Carolina banking regulators and the Conference of State Bank Supervisors.


Tom Miller

Leading force behind State Foreclosure Prevention Working Group

Early endorser of Dodd’s Homeownership and Equity The Working Group has focused particular attention on the inadequate Protection Act loss mitigation of mortgage servicers, and has undertaken great efforts to acquire and process data from the servicers related to their home Has participated in retention practices. Because mortgage servicers are largely unregulated numerous public events and and unlicensed, there had been, previous to the Working Group’s efforts, town halls no centralized reservoir of data related to servicers’ activity, other than Authored legislation to foreclosure filings, which are public record. The Working Group endeavored improve Iowa’s borrower to create just such a data reservoir, and achieved fairly broad voluntary protections participation from servicers, although there were a variety of roadblocks including concern about federal regulatory agencies’ “claiming the field” Leader in effort to protect state foreclosure laws from and discouraging servicers from participating. federal preemption

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The Working Group has released two reports that show with data what housing counselors have known anecdotally for some time, in particular that the servicers’ loss mitigation efforts are woefully inadequate, with seven out of ten distressed borrowers that should be on a loss mitigation track not receiving the assistance they need. These cases represent the “low-hanging fruit” of foreclosure prevention, in that routine modifications would allow the borrowers to save their homes and simultaneously reduce the loss in profits to the investors who own the loans, as foreclosures usually result in a significant profit loss, especially in a weak market. Without a clear picture of what the mortgage servicers are doing with loss mitigation, it is difficult to diagnose the weak links in their systems and start making desperately needed improvements, be they voluntary or imposed by new regulations. The Hope Now Alliance, the organization founded by the industry last year in response to the crisis, has trumpeted what it considers to be the success of the servicing industry in avoiding foreclosures, claiming in April, for example, to have provided “more than one million workouts” to prevent foreclosure. This is a rather incomplete picture though, as only 278,000 of those workouts actually involved a modification to the terms of the loan that had already become delinquent, and it is unknown how many of those modifications were merely capitalizing arrears instead of actually reducing the interest rate or principal to arrive at a more affordable monthly payment. The balance was mostly repayment plans, which actually increase the monthly payment of the distressed borrower by tacking on a portion of the arrears to the already unaffordable terms, and are not particularly likely to avoid foreclosure in the end. The Working Group’s efforts at getting real data on loss mitigation activities are critical to providing public accountability to improve servicing practices. Question One of the survey asked about willingness to work with other Attorneys General in getting just such data, and to make it as useful as possible by differentiating it by company and making it publicly available. There was broad support for continuing and expanding the role of the Working Group in this essential service they have provided.

Attorney general’s office can play an important role in the direct services that they provide to constituents, even though they may have budgets of varying sizes. These services can take many different forms, and aside from being smart politics, can actually succeed at reducing unnecessary foreclosures. Among the simplest services employed by some attorneys general is the creation of 1-800 numbers for distressed borrowers, as a centralized source of information for those seeking advice and assistance. Many offices also publish brochures or use their websites as a means for distributing information. Question Four asked the attorneys general about whether they have an information portal like a 1-800 number or published material on their website, and many offices have created portals for distressed borrowers, often in conjunction with their governor or state banking department. Some states, especially smaller states with smaller budgets, indicated that they lacked the staffing to provide direct assistance and relied instead on the Hope Now hotline to refer borrowers. Another constituent service many offices provide is to arrange large-scale town hall meetings or forums, whose purpose can range from the purely informational to the incredibly practical, by including lenders, servicers, and housing counselors and actually getting some workouts done on the spot. Question Seven

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asked the attorneys general about their willingness to hold large meetings like these in collaboration with community organizations. As with the 1-800 number, this is an easy way to inform the public, and attorneys general demonstrated widespread willingness to do more public events to inform struggling borrowers about their options and encourage them to avoid “foreclosure consultant” scam artists that have been preying on desperate homeowners. A natural byproduct of having an attorney general’s office interact with so many individual constituents in need of help is figuring out systematic ways to provide that help. The state of Massachusetts, in a show of interagency cooperation, has achieved nearly universal participation from servicers to voluntarily suspend foreclosure proceedings against any borrower that enters the state’s distressed borrower pipeline for sixty days. This provides ample time to collect the necessary financial documents that should inform any loss mitigation decisions, and word of the servicers’ participation helped encourage borrowers who had previously been out of contact with their servicer get back in touch through the state. Even the Hope Now Alliance has announced that most major lenders will provide a 30-day stay for previously no-contact borrowers that are facing foreclosure and make contact. Question Five asked about the willingness of attorneys general to advocate on behalf of individual borrowers to win a reprieve and some breathing room to hopefully negotiate a mutually agreeable solution to avoid foreclosure. There was, generally, less enthusiasm expressed from attorneys general about providing this level of hands-on service, mostly due to budgetary restraint, although more than 20 offices indicated their willingness to go to bat for individual borrowers with their servicers. ACORN recommends that those offices facing staff or budget shortfalls specifically request funding from the governor and legislature to carry out a program of borrower assistance.


Richard Blumenthal

Proposed and fought for predatory lending legislation in Connecticut Established a task force on predatory lending and foreclosure assistance

Contributed $10,000 to help train more than 150 There are many other additional constituent services that the most active attorneys for pro bono work attorneys general have provided, including a novel approach from Connecticut Advocated for individual Attorney Richard Blumenthal, who has trained more than 150 lawyers to provide borrowers to win stays on pro bono legal defense for families facing foreclosure. foreclosures

As the top legal officers in their states, attorneys general have a unique and important role to play in using the bully pulpit of their office to speak out in support of changes at the state and federal level that will help end the current foreclosure crisis and prevent it from returning in the future. Many attorneys general have taken full advantage of the platform their offices afford them to advocate for responsible lending and foreclosure prevention solutions, while others have avoided public pronouncements on areas

Brought suit against fraudulent appraisers Worked on educating consumers about mortgage scams Outspoken advocate for federal bills to help borrowers

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outside of a narrowly conceived role. Attorneys general need to support strong federal and state regulation of lenders. The federal government, from the executive branch to the Congress, and certainly including the patchwork quilt of regulatory agencies, did far too little in the years that led to the current crisis, and has been slow to react as well. One necessary step forward is the Homeownership Preservation and Protection Act, (S. 2452), authored by Senator Chris Dodd, which would rein in the most abusive and predatory practices of mortgage lenders and brokers, establish new safeguards for borrowers, and put some teeth into existing regulations. Importantly, the bill would allow attorneys general to enforce its provisions, without preempting existing state laws. Question Three asked attorneys general Lisa Madigan to endorse the Homeownership Preservation and Protection Act, and Illinois disappointingly, only about a dozen attorneys general were willing to give the Act a full-throated endorsement, even as many others acknowledged Member of the State Foreclosure Prevention the importance of new federal predatory lending laws. Working Group Another important change in federal law would allow an estimated 600,000 Instigated investigations borrowers to avoid foreclosure. Currently, federal bankruptcy judges are into two largest lenders’ allowed to modify the terms on major debts like RVs, yachts, and second practices homes, but are unable to do so for principal residences due to a specific loophole in federal bankruptcy law. The Emergency Home Ownership An outspoken advocate for and Equity Protection Act (HR 3609), would close this loophole and allow federal legislative changes bankruptcy judges to alter the terms on the mortgages of principal residences Created mortgage referral to save homes. In its original form at the time of the questionnaire, the helpline and lending guide Foreclosure Prevention Act (S. 2636) in the Senate included the bankruptcy changes, but was stripped out before the Foreclosure Prevention Act Led the fight for the achieved final passage. Question Six asked attorneys general to endorse Illinois Homeownership the Foreclosure Prevention Act, and saw similarly disappointing hesitancy Preservation Act to engage on federal issues outside of their immediate purview. Brought suit against mortgage brokers and One positive sign in terms of federal advocacy is that attorneys general rescue scam artists will step up to defend state prerogatives when the federal government’s penchant for preemption goes overboard. During the debate of the FHA package in the House of Representatives, Congress members Brad Miller of North Carolina and Steven LaTourette of Ohio offered an amendment to clarify that the federal government had never had a role in the foreclosure process and that the underlying bill was not to be used as a pretext for federal preemption of state foreclosure regulations. A total of 40 attorneys general endorsed the Miller-LaTourette amendments, and helped secure its passage by a wide, bipartisan margin, despite fierce opposition from industry lobbyists.


Attorneys general were generally more open and willing to push for changes to state law than to push the federal government, and many have even led legislative efforts to protect borrowers and reduce

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foreclosures, from drafting bills to testifying at committees and speaking at rallies. Question Nine asked attorneys general to work with their state legislatures and governors to ban predatory lending practices and reform the foreclosure process to encourage home retention activities. The vast majority of attorneys general indicated a willingness and enthusiasm to do so, even if they don’t all agree on the precise policy prescriptions to accomplish the goal. Many states have in the last year debated bills in response to the crisis, from full predatory lending bills to simple bills addressing the foreclosure consultant and rescue fraud operations, and it is heartening that attorneys general played large roles in securing passage of so many of those new consumer protections. One final advocacy arena deals not with legislative changes, but with directly calling on servicers to improve their performance in preventing foreclosures. The State Foreclosure Prevention Working Group has done an incredible service in laying the groundwork for measuring industry improvement, but as their most recent report showed most borrowers are not seeing a real difference despite all the glitzy efforts and pronouncements. Because the mortgage servicing industry has no regulator or uniform standards, efforts at gaining industry-wide improvements have been frustrating. A 2007 Homeownership Summit produced a “Statement of Principles” for mortgage servicing that was endorsed by community groups, industry groups, members of Congress, and attorneys general alike, but was clearly a voluntary guideline, like the Bush/Paulson initiative, and has had no discernible impact on foreclosure reduction. In February, 2008, ACORN announced that it had won major concessions from the nation’s largest subprime servicer, Countrywide, which set a new bar for best practices by agreeing to reduce emphasis on repayment plans, increase modifications, and do so with a clear standard of affordability to make sure the foreclosure avoidance strategy would succeed. ACORN and other community organizations have attempted to push other major servicers into “best practices” agreements that will improve their foreclosure prevention activities and provide real affordability standards by which to modify mortgages. Question Eight asked attorneys general about their willingness to join community organizations in pushing mortgage servicers to adopt such “best practices” agreements in an effort to reduce unnecessary foreclosures. Many attorneys general expressed a willingness to do so as a natural outgrowth of the work of the State Foreclosure Prevention Working Group, but unfortunately a number of attorneys general said that cajoling a company into changing its behavior when that behavior is not illegal would be an overreaching of their authority and said they were only interested in pursuing illegal behavior. In the vacuum of oversight and regulation that exists, aggressive leadership from attorneys general will be critical to


Lori Swanson

Before taking office created AG’s Predatory Lending Study Group Led fight with ACORN for nation’s toughest predatory lending law Called on Federal Reserve to crack down on predatory lending Frequent testifier before Congress on protecting homeowners Pursued many cases against predatory lenders and equity strippers Led public education efforts about foreclosure avoidance and rescue scams Joined ACORN in pushing the MN Foreclosure Deferment Act “The Minnesota Attorney General’s Office has a strong history of working with ACORN to fight predatory lending and prevent foreclosure.” - Letter from AG Swanson to ACORN.
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efforts to improve the industry and save homes from unnecessary foreclosure.

Obviously, the most important arrow in an attorney general’s quiver is the legal authority to represent the state in pursuing justice. Though there are significant disparities between the states in terms of existing predatory lending and foreclosure laws to form a basis for legal actions, most attorneys general do have a sound basis for pursuing legal strategies to protect homeowners and stop foreclosures and equity theft. Perhaps the best example of an aggressive legal strategy comes from Massachusetts Attorney General Martha Coakley, who sought and won a preliminary injunction against all foreclosure filings on “presumptively unfair” loans made by Fremont Investment and Loan. The order, issued by Judge Ralph D. Gants, prohibits Fremont from advancing or beginning foreclosure proceedings on any loan that is “presumptively unfair.” Under the order, a loan is considered presumptively unfair if it: • is an adjustable rate mortgage with an teaser period of three years or less; • has a “teaser” interest rate that is at least three percent lower than the fully-indexed rate (the relevant index at time of origination plus the margin specified in the mortgage note); creates a debt-to-income ratio exceeding 50% if Fremont had measured by the debt due under the fully-indexed rate; and extended 100% financing or the loan has a substantial prepayment penalty or penalty that lasts beyond the introductory period.

• •

Under the terms of the injunction, the Attorney General’s office must receive 30 days notice prior to a foreclosure, and has 45 days to object the proceeding. Fremont may then only proceed with a foreclosure over the Attorney General’s objection if Fremont files a request with the Court, and the Court reviews the matter and agrees that a foreclosure is appropriate. In considering whether to allow the matter to proceed, the court will evaluate whether the loan is unfair and whether Fremont has taken reasonable steps to work out the loan and avoid foreclosure through loss mitigation techniques. The injunction does not release borrowers from their monthly mortgage obligations. (The order is available here: cago/docs/press/2008_02_26_fremont_pi.pdf Question Two asked attorneys general whether they supported the court’s decision in this case, providing broad relief in the case that there was a clear pattern and practice of predatory lending and whether they would be willing to pursue a similar strategy to General Coakley’s. Although there was broad praise for the court’s decision and General Coakley’s diligent work, many attorneys general expressed skepticism about the prospects


Martha Coakley


Won preliminary injunction against foreclosures from Fremont Inc. Promulgated rules banning foreclosure rescue schemes Just filed suit against Option One on multiple counts Trained more than 150 attorneys to provide pro bono defense Advocated for stringent federal regulation

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of pursuing similar cases in their home states, in some cases because of varying statutory bases, but also in many cases because of the difficulty in establishing a pattern if the office has not been highly engaged on the constituent service work that brings those cases through a central pipeline where such patterns can emerge. Certainly, in the near future as more legal theories get tested in different states, there will be additional case law established to provide a guide for attorneys general to take legal action to protect borrowers, win compensation for the aggrieved, and force changes from bad actors. Another cutting-edge leader is New York Attorney General Andrew Cuomo, who has notched several impressive victories to reform broken pieces of the mortgage securitization industry, especially dealing with appraisal fraud and ratings agencies. In November 2007, Cuomo announced subpoenas of Fannie Mae and Freddie Mac, the two original governmentsponsored enterprises that are the largest securitizers of home loans. In March, Cuomo revealed an agreement with the two companies and the Office of Federal Housing Enterprise Oversight that requires banks that sell residential mortgages to meet certain minimum standards, especially relating to the independence of appraisals on which the loans are based, where there had been widespread fraud across the industry. In June, 2008, Cuomo made headlines again with his announcement of major reforms from the nation’s three big credit ratings agencies, whose rosy pictures of subprime mortgage-backed securities were relied on by investors that have since taken huge losses. The agreement with Standard & Poor’s, Moody’s, and Fitch increases the independence of the ratings agencies, requires that crucial loan data be provided to the ratings agencies s o they can actually perform due diligence, and takes other major steps with regard to transparency and openness of the ratings agencies. Cuomo has vowed that his investigation into the mortgage securitization industry will continue.


Andrew Cuomo
New York

Won major reforms from Fannie Mae, Freddie Mac Fought for transparency and independence in appraisals Secured major reforms from principal three ratings agencies New regulations ensure due diligence on loan underwriting Outspoken advocate for state and federal borrower protections

Although only a few attorneys general have pursued litigation against the industry’s biggest players, many offices have engaged in extensive prosecution of “foreclosure rescue consultant” scam artists. Often former mortgage brokers or real estate agents who are out of work in the current down market, foreclosure rescue consultants make offers of assistance to delinquent borrowers facing foreclosure, who are usually listed in required public notices. Through a variety of different schemes, all promising to save the family from foreclosure, the consultants end up stealing the home or its equity. It is certainly a positive indication of their growing grasp of the issue that so many attorneys general have pursued legal actions against foreclosure rescue scam artists, and just as the scam artists will persist throughout the crisis and grow more clever, so too must equity protection laws and enforcement of them. Massachusetts Attorney General Martha Coakley issued an order effectively banning all foreclosure rescue transactions that do not benefit the homeowner, and many other attorneys general are pursuing legislative changes to crack down on these abusive practices in addition to prosecution.
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METHODOLOGY _____________________________________________________________________________________
Attorneys general were asked questions about nine different issue areas (see Appendix for a copy of the original questionnaire, which is discussed in depth in the Findings section) and actionable strategies to fight foreclosures. For each of these nine questions, attorneys general could earn up to two points, with partial credit being awarded for answers that acknowledged the importance of or concern about an issue area without committing to taking a given action. Finally, the extra credit section awarded up to seven points based on other actions that attorneys general have taken to place their office on the frontlines of the battle against foreclosures. For example, the letter signed by 40 attorneys general in support of the MillerLaTourette amendment to prevent federal preemption of state foreclosure laws, although drafted and sent after the questionnaire had been distributed, was factored into the extra credit scores. The questionnaire was distributed in March and April, and all responses received by this report’s publication were included in its results. The grades on the scorecard were based on a simple rubric out of the 25 possible points, with 0-4 points receiving an F, 5-9 points a D, 10-14 points a C, 15-19 points a B, and 20-25 points an A, with the highest number of points in each grade range receiving a plus and the lowest number of points in each grade range receiving a minus (thus a score of 14 points received a “C+”, 15 a “B-”). Because of varying statutory authorities, some attorneys general were not able to answer this questionnaire. When an attorney general cited specific statutes curtailing their authority to fight against foreclosures, they were given a grade of “Incomplete”, though in most cases there is still a role, however limited, they could play in ameliorating the crisis, perhaps only with the bully pulpit. Florida Attorney General Bill McCollum was the only respondent who specifically cited a statutory/structural inability to answer exactly three of the questions, and still addressed the remainder; his score is based on a proportional scoring system with the three questions he could not answer discounted from the equation. In Ohio, an incomplete was given not for statutory reasons, but because there was a vacancy in the office during the survey’s response time, and an interim attorney general has just recently been appointed. Some attorneys general chose to respond to the questionnaire in writing, and to include supplemental material. In other cases, attorneys general preferred to answer the questions in a public forum or meeting with ACORN leaders. There were also some offices that declined to answer the questionnaire whatsoever, and in those cases ACORN attempted to scour the public record of websites, press releases, and court filings to give appropriate credit where it was due, though it is impossible to claim a truly exhaustive record. Absent the statutory restrictions that led to an “Incomplete”, as discussed above, all attorneys general were included within the survey and scorecard. 37 of 50 offices (not including Ohio) responded to ACORN’s request for information about foreclosure activity, a number that exceeded our goal and expectations at the outset of this project.

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Building Stronger & Safer Communities

APPENDIX ______________________________________________________________________________________________ ACORN Foreclosure Questionnaire
Lamentably, much of the current foreclosure crisis, which is sweeping across every state and wreaking havoc on our communities and our markets, was entirely avoidable if we had strong predatory lending protections in place. In a system as complex as the mortgage market, there is certainly much blame to go around for the current failures, but so is there an urgent need for leadership. The public and media have too often looked to the federal government for fixes, losing sight of many of the cutting-edge solutions that states generally and attorneys general in particular have been promoting. The questions presented below draw heavily on the current work of state attorneys general, and are intended to highlight those that have been taking aggressive leadership in fighting back against the foreclosure crisis. In addition to these questions, we have included an additional section to describe additional work being done, so as to continue to recognize best practices and innovative leadership. We would encourage you to take the opportunity to explain your answers, as we will be distributing the responses to ACORN members, allies, and the media. ACORN, the nation’s largest community organization of low- and moderate-income families, with more than 400,000 member families in 100 chapters, has been a leading voice for homeowners during the subprime crisis, seeking both to reign in predatory lenders and seek equitable solutions to homeowners to avoid foreclosure.

QUESTION 1: Disclosure and transparency of mortgage servicing data
The Hope Now Alliance recently announced the headline-grabbing number that its members had completed more than a million “workouts” since July, yet three fourths of these were repayment plans, which are much more likely to fail and less likely to address the structural deficiencies of most subprime loans. Further, the types of modifications were not discussed. Instead of industry press releases, the public and regulators would benefit from hard, comparable numbers. While there is no one body responsible for regulating servicers and monitoring compliance and progress in modifications, the State Foreclosure Prevention Working Group has provided a valuable forum to collect voluntary data. Most attorneys general are already working with the Group in some capacity, and its first report in February 2008 analyzing servicing data. It is critical that this data reporting continue with high compliance, and that it move toward producing more transparent and informative data. Will you work with other attorneys general in asking mortgage servicers to report on a monthly basis to the states the number and type of modifications granted, repayment plans offered, success rates of each, and the number of foreclosure filings initiated?

QUESTION 2: Injunction against foreclosure filings from predatory lenders
Massachusetts Attorney General Martha Coakley recently won a decision granting a preliminary injunction against all foreclosure filings made by Fremont Investment and Loan. The order, issued by Judge Ralph D. Gants, prohibits Fremont from advancing or beginning foreclosure proceedings on any loan that is
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“presumptively unfair.” Under the order, a loan is considered presumptively unfair if it: • is an adjustable rate mortgage with an teaser period of three years or less; • has a “teaser” interest rate that is at least three percent lower than the fully-indexed rate (the relevant index at time of origination plus the margin specified in the mortgage note); • creates a debt-to-income ratio exceeding 50% if Fremont had measured by the debt due under the fully-indexed rate; and • extended 100% financing or the loan has a substantial prepayment penalty or penalty that lasts beyond the introductory period. Under the terms of the injunction, the Attorney General’s office must receive 30 days notice prior to a foreclosure, and has 45 days to object the proceeding. Fremont may then only proceed with a foreclosure over the Attorney General’s objection if Fremont files a request with the Court, and the Court reviews the matter and agrees that a foreclosure is appropriate. In considering whether to allow the matter to proceed, the court will evaluate whether the loan is unfair and whether Fremont has taken reasonable steps to work out the loan and avoid foreclosure through loss mitigation techniques. The injunction does not release borrowers from their monthly mortgage obligations. See the order here: Do you support the thrust of the court’s decision, and would you be willing to file a motion seeking a preliminary injunction against all foreclosure filings from a lender or its servicer(s) that has a demonstrated pattern and practice of “presumptively unfair” predatory lending in a similar case given adequate resources?

QUESTION 3: Curbing predatory lending with federal legislation
Iowa Attorney General Tom Miller was among the strongest and earliest endorsers of Senator Chris Dodd’s anti-predatory lending bill, the Homeownership Preservation and Protection Act (S. 2452), stating, “Predatory lending is a serious problem and is one of the primary causes of the current subprime foreclosure crisis. In order to prevent this from happening again, it is imperative that important reforms are made to correct this market failure. Senator Dodd’s bill is strong and comprehensive in its efforts to reform this industry, and I strongly support his bill.” The Dodd bill will establish new protections for all borrowers, crack down on predatory practices in subprime lending, and clarify liability of the current mortgage holder so that borrowers know from whom to seek a cure. Crucially, the Dodd bill allows the state attorneys general to enforce the provisions without eclipsing or preempting state law. Will you publicly support the Homeownership Preservation and Protection Act?

QUESTION 4: Establish a direct pipeline to assist borrowers in your state
Many governors and attorneys general have established 1-800 numbers for distressed borrowers to call for more information about preventing foreclosure. Massachusetts Attorney General Martha Coakley not only set up a 1-800 but trained 150 pro bono attorneys in a two-day session to handle foreclosure filings.
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Building Stronger & Safer Communities

Will you create (or do you currently have) a toll-free hotline to assist distressed borrowers in your state, refer them to HUD-certified counseling agencies and pro bono attorneys, and collect information about their cases that could lead to consumer protection litigation? Alternatively, if resources are too scarce in your office to create such a line, will you advertise on your website and through other means these types of resources for troubled borrowers?

QUESTION 5: Seek voluntary 60-day stay for distressed borrowers in assistance pipeline
Massachusetts has achieved nearly universal agreement from servicers to voluntarily offer a 60-90 day stay for all distressed borrowers that enter the Commonwealth’s homeowner assistance hotline. Even the industry nationally, through the Hope Now Alliance, has agreed to a 30-day stay for any borrower seeking assistance. Will you seek a voluntary 60-day stay for all homeowners facing foreclosure that call your state’s hotline number or contact the lender with a HUD-certified counseling agency?

QUESTION 6: Federal legislation to prevent foreclosures
A recently introduced package of bills in Congress includes a number of critical pieces to address the foreclosure crisis. Among other items, the Foreclosure Prevention Act of 2008 (S. 2636) would increase disclosure requirements on mortgage documents, extend to five years the net operating loss corporate tax break, provide CDBG money for purchase and rehabilitation of foreclosed properties, increase support for housing counseling programs, and allow state housing finance agencies to issue bonds for refinancing. Finally, the package will change the bankruptcy code to allow judges to modify terms on a first home for borrowers who meet strict income and expense criteria, just as judges can currently do for vacation homes and yachts. This final provision is expected to help 600,000 families. Will you publicly support the Foreclosure Prevention Act?

QUESTION 7: Hold town hall hearings on foreclosures with community organizations
Michigan Attorney General Mike Cox held three well-attended and informative foreclosure-related public meetings across the state. He is just one of many attorneys general that have taken advantage of the bully pulpit and held town hall hearings across their states with community organizations and counseling agencies in order to advertise options available for distressed homeowners as well as warn mortgagors against the vulturine “foreclosure rescue” consultants that prey on homeowners in crisis. Will you work with community organizations like ACORN to hold town hall hearings and other events to educate the public about their options to avoid foreclosure and warn of potential dangers in foreclosure rescue scams?

QUESTION 8: Pressure companies to come to table with community organizations
While the Bush Administration and Treasury Secretary Paulson have convened the Hope Now Alliance of

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Building Stronger & Safer Communities

mortgage industry representatives, its contributions so far to foreclosure avoidance have been limited. Hope Now’s five-year teaser freeze plan only covers those borrowers that become delinquent because of a rate reset between January 2008 and July 2010, and offers no assistance to the majority of subprime borrowers who were delinquent prior to January 2008, those who become delinquent prior to a future rate reset, or who fall behind for additional reasons beyond a rate reset. Most estimates put the number of borrowers eligible for assistance under Hope Now between 175,000 and 240,000. Recently, ACORN announced major reforms it had won from Countrywide, the largest servicer of subprime loans, that will lead to streamlined modifications for many more classes of borrowers than are assisted by Hope Now. This “Best Practices for Servicing Subprime Mortgages” agreement is expected to assist hundreds of thousands of borrowers achieve an affordable monthly payment and avoid foreclosure when they become delinquent on their subprime first mortgages. Will you work with community organizations like ACORN to encourage lenders and servicers to sign “best practices” agreements that move struggling families from the fast-track to foreclosure into sustainable modifications with affordable monthly payments?

QUESTION 9: Support legislative solutions in your state
Minnesota Attorney General Lori Swanson fought side by side with Minnesota ACORN in helping Minnesota adopt some of the nation’s toughest predatory lending laws last year, and is actively engaged in ongoing foreclosure prevention efforts. While some attorneys general have the right to draft and file legislation, all attorneys general have a bully pulpit from which to speak out in favor of changes to state law. The vast majority of states are in serious need of updates in predatory lending and foreclosure law to address the current subprime mess. Will you actively work with your state legislature and endorse measures to improve predatory lending protections for homeowners and reform the foreclosure process to encourage home retention solutions?

The previous nine questions have covered a number of different solutions, big and small, to the foreclosure crisis that attorneys general can champion to help families avoid foreclosure, but clearly no limited set of questions can cover the full scope of activities that attorneys general are engaged in with respect to the foreclosure crisis. Please take the time to share some of the initiatives that you have undertaken so that we can highlight new and innovative work

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Building Stronger & Safer Communities

ACORN is the nation’s largest community organization of low-and moderate-income individuals, with more than 400,000 member families in 110 cities and 40 states fighting for financial justice. We’re getting together to fight back against predatory lenders and save peoples’ homes. The ACORN Financial Justice Center is the central node through which ACORN members fight against payday loans, refund anticipation loans, predatory mortgage loans, and other economic rip-offs that sap wealth from low-income communities. Austin King is the director of the ACORN Financial Justice Center and can be reached at for questions about this and other efforts.

ACORN Financial Justice Center
2609 Canal Street • Suite 500 • New Orleans, Louisiana 70119 • Phone: (504) 267-3755 • Fax: (504) 267-3751

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