MS. DIANE REHMThanks for joining us. I'm Diane Rehm. After more than 500 days of negotiations, federal and state officials are on the verge of a landmark settlement with banks on foreclosure fraud. The proposed agreement would provide cash payments to homeowners who lost their homes and relief for those who owe more on their homes than they're worth. Joining me to talk about the pending settlement and other recent housing proposals: Kathleen Day of the Center for Responsible Lending and Brady Dennis of The Washington Post.

MS. DIANE REHMJoining us by phone from Sarasota, Fla., Ed Pinto of the American Enterprise Institute. You are welcome to be part of the program as always. Join us on 800-433-8850. Send us your email to drshow@wamu.org. Send us a Facebook posting or a tweet. And good morning to all of you.

MR. BRADY DENNISGood morning.

PROF. KATHLEEN DAYHey, good morning.

REHMGood to have you here. Brady Dennis, remind us how we got here. What's the root of the pending settlement and agreement of states going forward?

DENNISI think it's probably helpful to go back a few years when the housing boom all of a sudden turned into a bust. And these banks that have become really proficient and quick at churning out home loans all of a sudden had to do foreclosures on a similar scale. And, quite frankly, they weren't set up for that, and they weren't equipped to do that, system-wise, staffing-wise. And what ended up happening, quite frankly, was they began to cut corners in the paperwork that would go into the legal filings for foreclosures.

DENNISAnd the range of activities -- you know, you had some workers who were signing off on up to 10,000 foreclosure filings a month. You had people signing other people's names, forging other people's names. You had false notarizations. You had backdated mortgage assignments and just a range of activities, and that became -- that became apparent in the fall of 2010. And as you might imagine, there was quite an outrage in the country.

DENNISA lot of lenders halted their foreclosures across the country. There were calls for investigations, and that's when the settlement talks began with some of the five biggest banks.

REHMSo give me some of the outlines of this planned agreement.

DENNISRight. Well, so, as you mentioned in the intro, it's been a long time coming, as you might imagine, with 50 state attorneys general involved, federal officials from the Department of Justice and the Housing and Urban Development. The general outlines -- we haven't seen a final settlement yet, but the general outlines would include up to $25 billion to help with a range of aid to homeowners. Some would be reducing the loan balances for people who are behind on their mortgages.

DENNISSome would help to refinance those mortgages into lower interest rates. Also, there's some money put aside for restitution to people who had already lost their homes to foreclosure, for damages that they might have suffered during the process. And also, one significant -- big, significant piece of the deal is also to end that so-called robo-signing activities to force some of the lenders and mortgage servicers to pursue more loan modifications to keep people in their homes and to help those homeowners through that process.

REHMTell me why some states are holding back.

DENNISA few states are holding back for various reasons. One key state is California that hasn't signed onto the deal just yet. Kamala Harris, the AG out there, has said she's not sure it's a sufficient deal given the scope of the foreclosure crisis in her state. Across the country, in places like New York and Delaware, the attorneys general there have expressed concern that any legal releases that the settlement includes might preclude them from doing further investigations into other parts of the mortgage crisis, like the way that loans were packaged and sold in securities.

DENNISSo I think before they were to sign on, they want to make sure that they can pursue those investigations. And so, you know, the organizers said last night they had more than 40 states, but we're still waiting for a few key ones to say which way they're going to go.

REHMBrady Dennis. He's national economics reporter for The Washington Post. Kathleen Day, what do you think of the proposed settlement? Does it go far enough?

DAYIt is not perfect, but it is a huge step forward and, we think, strikes a reasonable balance between getting some relief immediately to homeowners that are out there and also preserving the ability of prosecutors, federal and state, to pursue claims of criminal and securities fraud violations.

REHMBut I gather it's only about robo-signing fraud and not really focused on fixing bank fraud.

DAYWell, they go together in some cases, but one of the problems with this investigation has been the public expectation that it would solve -- it came to become this emblem that would solve everything that's gone wrong with the mortgage market. And, in fact, it is a defined set of -- a defined set of issues surrounding servicing. And so it does end the egregious robo-signing and many other bad practices.

DAYAnd an important one that it ends is -- or curbs or severely limits is dual tracking where a homeowner, in good faith, was negotiating for a loan modification or refinancing only to suddenly be slapped with a foreclosure. So it stops things like that.

DAYIt says just common sense things like a homeowner who's negotiating in good faith for loan modification should be able to deal with the same person each time they call, so that they don't have to reinvent the wheel each time. They need to set up an electronic system so documentation that you send in doesn't repeatedly get lost or misplaced. Things like that that are just -- shouldn't have happened.

REHMAFL-CIO president Richard Trumka said that a sum larger than the rumored $25 billion to fix these problems is not enough. What do you think?

DAYWell, look, the size and scope of this problem is -- there's almost not enough money, no one has enough money to really fix what happened. This is -- this was a big, big train wreck, OK, and, just to beat a dead horse and use it as analogy, this isn't exactly like just passing out blankets and coffee after the train wreck. It's more like giving people a place to go, but it doesn't really restore everything to where it was beforehand. No, but it was never intended to. That was beyond the scope of what they were looking at.

REHMKathleen Day of the Center for Responsible Lending. Turning to you, Ed Pinto, what do you think about the proposed settlement?

MR. ED PINTOWell, I have two problems with the proposed settlement. One is I think when this problem arose about 16 months ago, the administration and the FHFA, the regulator for Fannie and Freddie, both came out and said, first, if there are any practices that are inappropriate, they should be stopped. Two, if there are any homeowners that were harmed by the practices, they lost their home when they shouldn't have, they should be compensated. And, three, we need to move on with the foreclosures and not hold up the foreclosure process.

MR. ED PINTOWell, 16 months later, we now have -- the foreclosure process has been stopped up for a very long time. Many, many people have been staying in their homes without paying any monthly payments. The average loan and foreclosure in judicial foreclosure states is now over two years without making any payments. So what has been found through this investigation is -- I have not seen any evidence of actually individual people that were harmed. Yes, there were -- 10,000 were done in a month or whatever.

MR. ED PINTOBut where people foreclosed on in mass numbers that shouldn't have been foreclosed on, I have not seen any evidence of that yet. The settlement does two things. It pays billions of dollars to people who were foreclosed upon of -- and gives each one $2,000 when they've already, in many cases, received other benefits through not having to pay while their foreclosures were held up, which many have been. Secondly, it provides money for principal reduction in many cases. But, again, it's not tied to the specifics of the robo-signing.

MR. ED PINTOIt's tied to other things. And when you get to the other things, that's my second problem, which is government housing policy caused this train wreck. And for the states attorney general and the government to then come after the fact and try to pin the blame on everybody else rather than the government policies that caused the train wreck, I think is dead policy and is setting a tremendously bad precedent.

REHMEd Pinto, tell me how you believe that the government housing policy caused this problem.

PINTOI just, this morning, sent out an email that linked to the National People's Action, which is a group active in these matters, back in 1991, testified before the U.S. Senate banking committee. And this is very instructive. It's very short sentenced. Lenders will respond to the most conservative standards unless Fannie Mae and Freddie Mac are aggressive and convincing in their efforts to expand historically narrow underwriting.

PINTOThat really lit the fuse that in 1992, when the so-called Safety and Soundness Act was passed, 1995, when the National Homeownership Strategy was promulgated by then President Clinton, 1994, when Fannie Mae announced the trillion dollar program and many other programs that followed -- in the years that followed. So, now, we flash forward to 2012, and we have the same group, National People's Action, saying anything less than $300 billion of a settlement would be, you know, a travesty.

PINTOAnd so after calling for banks to abandon their conservative standards, they now want restitution for the damages that resulted from the banks doing what National People's Action asked for.

REHMEd Pinto. He's resident fellow at the American Enterprise Institute, former executive vice president and chief credit officer for Fannie Mae. We'll take a short break here. When we come back, I know we'll have more discussion. Stay with us.

REHMAnd welcome back as we talk about negotiations among federal and state officials for a landmark settlement with banks on foreclosure fraud. Here in the studio: Brady Dennis of The Washington Post, Kathleen Day of the Center for Responsible Lending. On the line with us is Ed Pinto, who's currently with the American Enterprise Institute. He's former executive vice president and chief credit officer for Fannie Mae.

REHMHis last comment was to the effect that, in fact, government housing policy had caused this huge problem in the housing and mortgage market. Kathleen Day, what's your response to that?

DAYAny bad government policy that contributed to this was lobbied for mightily by the financial services industry. So to say that they lobbied for policies, that then they were forced to comply is ridiculous. And the GSEs, I know this is not a show about the GSEs, Freddie and Fannie, but this is a industry-perpetuated myth and narrative that the GSEs caused this problem. There's lots that they did wrong, and they did contribute to it. But they did not cause it. They were followers. This was Wall Street run amok after lobbying not to have any common sense rules in place.

REHMBrady Dennis, does the proposed settlement include loans by Fannie and Freddie?

DENNISNow, this would mainly deal with loans from the five servicers who are -- five of the biggest banks in the country. It's Bank of America, J.P. Morgan, Citigroup, Wells Fargo and Ally Financial, which was formerly GMAC. So, you know, the scope of this, at least at the moment, is limited. It would be many, many loans, but it's limited to those lenders.

DENNISAnd now the people, who the officials are negotiating a settlement, have said they that they hope to get this squared away and create sort of a standard that the industry would adopt, and that they could then use that blueprint to go to other lenders and replicate these standards. So -- but at the moment, it's a limited group

REHMDo you think Fannie and Freddie should have been included in this negotiation, Kathleen?

DAYWell, it might not have been the place to include them. But it is true, as was just mentioned, that the hope is that a standard of servicing will be set so that the GSEs, both Freddie and Fannie, will feel compelled to follow those. But it is also true that Freddie and Fannie need to do more to modify loans under the government's affordable housing modification program. So GSEs could do more, and they should do more, but not necessarily under -- hopefully, they'll come -- they'll use the standards that are established in the AG settlement.

REHMEd Pinto, I want to go back to your comment about government really being at fault here. What about the idea that Freddie was betting against homeowners who were taking out mortgages, and to Kathleen's point, that the lobbyist were really pushing for these mortgage rights?

PINTOOn your first point, Diane, I would -- I have a little different view than some. I think the -- one of the original sins for Fannie and Freddie was the portfolio. They had two businesses. They were guaranteeing loans, and they were owning mortgage investments, which they call their portfolio. And with the portfolio, that was incredibly profitable because it was basically following the usual borrow short, lend long and earn a big spread on the difference. And that's what caused problems on a couple of occasions for Fannie and Freddie.

PINTOAnd so we now have a situation where in 2008, when they were putting the conservatorship, the clear goal, as evidenced by the agreement that was entered into, was to reduce these massive portfolios, and eventually get them down to a much more manageable size. So what we now have is Fannie and Freddie still have fairly large portfolios. They've gone down some, but, unfortunately in 2009, they were granted the ability to keep the portfolios larger than they otherwise had been just in 2008.

PINTOAnd so Freddie was still doing things to hedge this portfolio in ways that I think were probably inappropriate just because they were the ultimate in what's known as moral hazard, or heads-I-win, tails-you-lose because if the bet turned to be a good one, then Freddie would earn a lot of money. And if the bet turned out to be a bad one, the taxpayer would be on the hook. So it was just continuation of the same crony capitalism, socialize the losses when there are some.

PINTOIf you have some profits, it'll make Freddie look better. It might lead to a better result from Freddie's perspective down the road. So, I mean, that's the way I look at it. I don't know that it was a bet on homeowner's rating. I think that gets a bit tenuous, but I just think it was inappropriate for them to be involved in this using what is, in effect, taxpayer's money to run a hedge fund.

REHMKathleen Day.

DAYWell, first of all, I don't know enough, and I don't know if Mr. Pinto knows enough to know all the details of what Freddie Mac did. But there's also -- it's also true that every company that has a product, whether you're Nestlé's with cocoa or you're the Freddie and Fannie with mortgages, you also buy an insurance contract, which is called a derivative, which basically insures it's a responsible thing to do.

DAYSo if your product somehow, the pricing of it, doesn't turn the way you expected it to go, you will then have this insurance product, which will make up for some of the loss. You could argue -- and, again, I don't know the details of Freddie Mac, so I'm not defending them or commenting on them per se, but just because they hedged using derivatives. That's what every major corporation does.

DAYAnd, in fact, if major corporations didn't, people would say, oh, my gosh, you're irresponsible for not doing it. You have a responsibility to minimize taxpayer loss.

REHMAll right. Here...

PINTOMay I add something, Diane?

REHMSure, go right ahead.

PINTOWhat's not generally known is, as I said, Freddie and Fannie, their main business is guaranteeing mortgages. That's known is a collect servicing guarantee fees or piece of this -- of the interest rate and it's known as an interest-only strip. It's just comprised of interest. And so they already have a big hedge against their portfolio because their main business, which between them totals $5 trillion in guarantee fees, guarantee fees on $5 trillion of loan, is an interest-only strip.

PINTOYou would normally hedge that with a portfolio asset. So here you have Freddie having a hedge already natural from their business, hedging a portfolio and then going out and taking out additional very risky, volatile assets to further potentially make money or not make money. Again, I really think it was looking like a hedge fund. But that's not commonly known that they already had a very ample hedge in this particular risk.

REHMAll right. I want to move on here. We have an email from Jim in Indiana, who says, "I believe it would be a mistake to accept any settlement that would absolve the banks of any criminal wrongdoing. Accepting this agreement now would effectively stop the investigation before we even know exactly what went on. I'd like to hear your guests explore this aspect in detail." Brady.

DENNISWell, first of all, it's probably important to point that these are civil actions that are being settled right now, so criminal would be something separate entirely. But it's entirely appropriate to debate whether, you know, how broad an immunity the bank should be granted in return for these penalties that they're going to pay and the changes that they're going to make. And that's the debate that you're seeing take place among the attorneys general right now as they try to finalize this deal.

DENNISThere are some who worry that the legal releases -- and we haven't seen the exact language on this -- worry that they'll go too far and amount to a slap on the wrist and let the banks off the hook. The people who are negotiating the deal have said, we've done our best to craft a very narrow legal release so that it deals with the issues at hand, and that it allows other investigations to go forward. So I guess we'll just see where that ends up, but it's still very much a sticking point.

REHMAll right. And here's another email from Sherry in Hell, Mich., who says, "I'd like to point out that many people struggling to pay their mortgages are like me, people like me who've been unemployed for a long time, whose mortgages were taken out many years ago, with substantial down payments and good credit at the time. I know many in this situation and others whose homes are now worth far less than is owed on their mortgages, none of whom are irresponsible borrowers. We are not part of the problem and are paying dearly for it." Kathleen.

DAYThere's no question about it. One of the things that should have happened -- I was calculating it on my way. And 4 1/2 years ago we've been talking about how to short-circuit the foreclosure crisis, and, in fact, this person makes a good point. Their property value -- every time there is a foreclosure, then surrounding property values go down in value. I really take exception to Mr. Pinto's assertion that no one was harmed.

DAYTens of thousands, possibly hundreds of thousands of people have been put into foreclosure without proper due process. And, very likely, many of them could -- hundreds of thousands -- could have and should have been put into a loan modification, which would have been better for everyone. It would have prevented the foreclosure that depresses surrounding property values. It would have stopped eroding local tax bases, and it just would have been better for everyone.

DAYAnd so now everyone, almost everyone, has come to that conclusion. But it was the banks. Let's not forget, it was the banks 4 1/2 years ago that absolutely lobbied against every effort to compel them to do loan modifications, and they said, we'll do it voluntarily. We'll set up the systems. We will do it. And, look, now, they didn't do it, and it's cost us all, including this homeowner.

REHMWhat about that, Ed Pinto?

PINTOWell, there's a lot of facets to that question. I would focus on one. The individuals who have been paying for five years and are underwater, I do think there is an approach that makes sense for those borrowers, which would be to -- and I think it starts with Fannie and Freddie. And I've suggested this. It hasn't been done. You take all the borrowers that Fannie and Freddie have that have been current -- what the president calls responsible borrowers. Let's assume that there's a definition of that, responsible borrower.

PINTOAnd anybody who's more than 20 percent underwater has their loan automatically modified by Fannie or Freddie from the current -- the average is about 6.1 percent -- to today's rate, about 3.25, 3.5 percent. But instead of the mortgage payment going down, the loan term shortens because the one thing that we haven't done in all of this -- and we can talk about all of the individual, you know, cases and the anecdotal instances, but we've had house prices drop by something on the order of 25 to 30 percent nationally.

PINTOYet in terms of the outstanding mortgage balances from the peak in 2007, first mortgages have dropped by about 5 percent. We've done very little to reduce the leverage, and that's what's really dragging on the market, and it's because we haven't had the foreclosures that should take place occur expeditiously.

PINTOWe haven't had -- instead of allowing refinances where loan terms are extended and it's used as a false stimulus program to put more money in people's pocket, yet the money came out of somebody else's pocket because it's a zero-sum gain, instead we should be lowering amortization term and paying off these loans if they were -- did what I -- the example I just gave. Instead of having 25 years left, a loan would amortize in about 16 or 17 years. At the end of five years, they wouldn't be underwater anymore.

REHMAll right.

PINTOThat's positive progress towards solving the problem. We haven't really addressed the problem, which is over-leverage and too few jobs.

REHMEd Pinto of the American Enterprise Institute. And you're listening to "The Diane Rehm Show." Do you want to comment, Brady?

DENNISWell, I think -- a couple of things. I think Ed makes a good point that there is a limbo in the markets right now because when this -- slightly different point -- when this robo-signing activity became public, the lenders did sort of freeze foreclosures for a while, and that has left a lot of properties and probably a lot of very legitimate...

REHMIn limbo.

DENNIS...in limbo. And I think a lot of people agree that that is delaying, you know, a rebound in the housing market, to the extent that there would have been a rebound. On the refinancing point, I think this has been one of the great dilemmas of the housing crisis, is that we have historically low interest rates, and so many people, like the woman who emailed in, can't take advantage of those, either because their house is worth a lot less than they paid for it or because they simply no longer have the credit to qualify for refinancing.

DENNISAnd, you know, you're seeing the administration, I think, try to push more to make that happen, but it's really not happened yet for millions of people who could benefit from that refinancing.

REHMAll right. I want to open the phones here and go first to Orly (sp?) in Putney, Vt. Good morning to you.

ORLYGood morning, and thank you for taking my call.

REHMYou're most welcome.

ORLYI had just a couple of things I wanted to bring up, and one just in response to a couple of comments recently. The robo-signing issue, let's call it what it is. They were fraudulently submitting documents to the court. This is fraud. It's not just -- you know, don't just sweep this under the rug.

ORLYBut, more importantly, at least from my perspective, is in 1997, when the banks kind of from whole cloth created the Mortgage Electronic Registration System, the MERS system, in order to sidestep paying the local registrar's offices the fees every time they moved a document from one owner to another is they were creating these large securities out of all of these different mortgages. They broke the chain of title for those properties.

ORLYSo now you have an entire group of properties that nobody knows who owns it because the chain of title has been broken. MERS is not a person. It's not an entity. They didn't file the registrations with the appropriate county land assessor's offices. So when a property is foreclosed on, if I bought a foreclosed property, now there's no guarantee to me that that title is clean and that I actually would own that property.

REHMKathleen.

DAYThat's quite true. It has made a mess of being able to establish who owns the mortgage, not the house. The homeowner presumes, but -- so it's absolutely true that MERS is -- it's known as MERS, and it's based in Northern Virginia. And it's a mess. It was a mess, and that is one of the problems that the industry, in setting up and automating the loan-making process, they made it so -- they did everything so quickly that they cut corners.

DAYAnd so, again, when it was time to fix -- or people started defaulting, the only thing the banks knew is foreclosure. They weren't set up to do mass loan modifications and evaluate it properly. So the gentleman is quite right. One thing I would like to say about Mr. Pinto, though, I think he suggested that we should raise current homeowners' monthly payments because if you keep...

PINTONo, no. I did not say that. I said we should keep the payment the same and lower the amortization point. So lower the interest rate...

DAYSo you're for principal reduction.

PINTO...keep the payment the same. The loan will pay off much faster and will help resolve the over-leverage problem.

DAYSo you're for principal reduction.

REHMAre you for principal reduction, Ed?

PINTOI'm not for principal reduction.

REHMOK. That's all I wanted to hear. Short break. We'll be right back.

REHMAnd we'll go right back to the phones. Let's go to Fort Lauderdale, Fla. Good morning, Derrick. You're on the air.

DERRICKGood morning, Diane. What a pleasure to be on your show.

REHMThank you.

DERRICKI would just like to say that I am one of the victims that was put into foreclosure without the proper paperwork. In fact, I lost my job in 2008, at which time I stayed current with my mortgage, my insurance, tried loan remodification, short sale to the point where Bank of America would not participate in waiving the deficiency 'cause they weren't participating in that program for Freddie Mac.

DERRICKAnd I think that if it is true that this settlement will give us about $1,800 per household, it's just not acceptable for all the trouble that I've gone through, trying to work with the system, trying to do what was right, only, two, three years later, to be told, well, we'll write -- give you check for $1,800, and that'll be it, really, I don't think is fair. I'm sorry.

REHMBrady.

DENNISThe caller makes a good point. I mean, there's been example, like the example of a homeowner I've talked to, who has just gone through a maddening maze of bureaucracy in trying to deal with these lenders, who, in fairness, are also overwhelmed. And so the settlement aims to rectify that. The caller makes the point that it's too late in his case and then too little.

REHMAnd too little.

DENNISI will point out that, apparently, the settlement does not preclude people who have gone through similar situations. They can accept that payment and still be eligible to file claims in, like, a class action lawsuit. So...

REHMDid you know that, Derrick? Derrick, are you still there? Derrick? No. I guess he's not.

PINTOThis is Ed. I think that raises a very good point. The problem with this lawsuit is it isn't dealing with specific instances of individuals yet it's a massive amount of money, $25 billion. It's one thing to say, you know, these were the practices, and we're going to stop these practices. These are the practices we're going to have in the future. This is some, you know, reasonable amount of restitution to be made. But if all -- you know, people like Derrick should be allowed to go and have their day in court and get compensated.

PINTOBut to give -- I mean, where the lenders are having trouble is to pay $25 billion for general stuff and then still be open to all of the other lawsuits. The $25 billion number is the problem. They're trying to come up with a massive settlement that divvies it up among a lot of different states when, in fact, the individual claim haven't been dealt with. You're going to give people who haven't been harmed $2,000, and yet the people who, you know, arguably have been harmed are, you know, not -- they still have to go forward to get their day in court.

REHMKathleen.

DAYIt's just nonsense. First of all, people, they don't automatically get the money. You will have to show that you -- that something was done to you. Of course, it's not enough to -- it's not sufficient recompense to make the person whole. But, frankly, the banks made such an -- investment banks made such a mess of this. There's not enough money, really, to compensate people for all that they've had happen.

REHMSo you would agree with Trumka, that $25 billion that people are talking about is not going to be enough to fix this?

DAYBut it was not -- it's not intended to, but it's probably -- it gets money into the pocket of people who were harmed sooner than if they had to have a protracted legal...

REHMAll right. To Richmond, Va., good morning, Jack.

JACKYes. Hi, good morning.

REHMMorning.

JACKThanks for taking my call.

REHMSurely.

JACKI listen to you daily, and this is my first time calling. And I'm going to give you the facts really quickly 'cause I know we're short on time. I'm 43. I've been on disability. We bought our first house in '03. It was a fixer-upper. We had borrowed money from friends and family. My bank locally sold it to IndyMac around 2008. Due to my disability and my medical bills and my wife losing the job, we went into foreclosure. At the time, we sought out help from attorneys, et cetera.

JACKThere weren't really any options available except to walk away or file bankruptcy. So we walked away. Meanwhile, the house sat empty for 2 1/2 years. It's now been bought and sold twice with investors making a ton of money. And despite the errors in the paperwork, et cetera, et cetera, we lost everything. And I'm just very angry. And I know this call probably doesn't address some of my issues, but it's just pathetic. And I can't find the words to describe it.

REHMI'm sorry you're in that kind of situation. Brady.

DENNISWell, I know that Kathleen mentioned, you know, that a lot of people are in that situation and that everyone arguably would be better off the banks -- the homeowners, the neighborhoods -- if there were a way, fairly, to keep people in their homes, at least people who still have some hope of maintaining their mortgage.

REHMWhat about renting, Kathleen?

DAYPeople are experimenting with the idea of renting and taking some of these properties. And those are all good, and, you know, all these things are incremental -- add to the solution. There is no one silver bullet. So we should be doing all these things and trying things. But one thing I want to have everyone remember is, why did the AG investigation happen in the first place? Federal regulators told the attorneys general in the 50 states to shut up and sit down while all these bad practices were going on.

DAYAnd it was called pre-emption. But -- and then suddenly, the federal bank regulators said, whoops, we let them do all these bad things. And now Dodd-Frank, the financial reform bill, rolls -- allows the attorneys general a seat at the table going forward to stand shoulder or sit shoulder-to-shoulder with federal regulators to police for bad practices. But let's remember how we got here in the first place is federal government tied the AG's hands.

REHMAll right. To Katy in -- sorry, Cynthia in Katy, Texas, you're on the air.

CYNTHIAHi. I recently moved from Florida. My two questions are we've not heard from Pam Bondi at all. She's had the third or second highest foreclosure rate in the country. We've heard nothing that she's doing to try and help the Florida homeowners. My home was taken last year after a five-year battle with Wells Fargo of -- you know, with lost paperwork or whatever, whatever. I tried to go to court. I tried to hire lawyers.

CYNTHIAAnd the bottom line was, in a legal foreclosure and a legal eviction of myself and my two children of my house for 10 year, well, we decided to move to Texas to be near our family. But, you know, the human toll of it is more than the house is worth, and I'm wondering why haven't we heard from Pam Bondi. And, secondly, you know, individually, what can homeowners do, you know, to be compensated, to...

REHMYeah.

CYNTHIAI don't know if, you know, I can regain any kind of claim to my house since Duval County has put me out. The banks have put me out. And at the same time, nobody knows who really owns the mortgage. So...

REHMAh, Cynthia, you are in a pickle, clearly. And just to clarify, Pam Bondi is the Republican attorney general from Florida. What can you say, Brady?

DENNISI just want to take a second to key in on something that your caller said about the human toll of this.

REHMOf course.

DENNISI spent about seven years in Florida, and I've been back many times since the crisis. And it doesn't take much to drive to the neighborhoods and see that foreclosures and empty houses -- you know, the policy arguments aside have sort of an exponential toll on the people who are still living there. And there's really a few places worse than Florida to go and see that even today. As far as Pam Bondi is concerned, there was a lot of -- Florida was a mess, a lot of wrongdoing in that state, you know?

REHMWhat kind of wrongdoing?

DENNISWell, you know, Florida had this interesting thing called the rocket docket in its courts in which the foreclosures would just be churned through. I saw judges signing foreclosures as fast as their hands could go. And, you know, in fairness, most of them probably were legitimate foreclosures. But at that speed, there were a lot of questions of the legality. So Florida -- I think, by all accounts, Pam Bondi is probably most likely engaged in the current settlement, likely to accept what aid she can get for her state. But like other states, it's not going to solve the problem entirely.

REHMAnd what can Cynthia do at this point, Kathleen?

DAYWell, she might want to get an attorney and see what possibly could be done. When the settlement is signed, she'll want to go on to the -- check in with the attorneys general. They'll be -- I'm sure they'll have instructions on what to do and where to go to try to get some relief.

REHMAll right. Ed Pinto, any comment?

PINTOI think that there are lots of, you know, stories that are heartrending, and, you know, we're hearing some here. And there may be redrafts for those. But we also have to look at, how do we get the continuing problem of our economy, you know, of being languishing moving forward and having -- I went through the process in Texas in the early '80s, which Texas had, you know, rapid foreclosure process in place. And it was heartwrenching to go through, but it turned the economy in Texas around very quickly.

PINTOTexas came, you know, back very quickly, and everyone who -- you know, unemployed people got jobs, and the economy just turned around. What we're doing here is we keep postponing the solution. And so we're now 3 1/2, four years into this problem, and there's no end in sight. We should be bottoming out. And if we don't get this foreclosures cleared, we won't.

PINTOAnd so I understand there are these, you know, cases, but you also have to look at how do we get our economy moving. In the meantime, we keep interest rates near zero. I mean, we're just creating the next set of problems with what we're doing today.

REHMBrady.

DENNISWell, I think, you know, for better or worse, we're going to have this national discussion because you have Mitt Romney on the campaign trail right now and other Republicans say, let the market do its job. Let's clear the foreclosures out as painful as it will be and let it run its course.

REHMWhat does that mean, clear the foreclosures out, toss people out of their houses? Is that what that means?

DENNISIt means speed up the process. In states like New York or New Jersey, you know, that can take two, three years to legally go through a process, and I think there are -- a lot of people argue that that should be a much shorter process.

DAYBut who made it such a tangle to go through? The banks, it was their fault their servicing procedures are a total shambles. And I'm sure Mr. Pinto is not saying let's just -- let everyone out of their -- let's kick them out without due process of law. You're not suggesting that, Mr. Pinto, are you, just kick people out?

PINTOI'm suggesting that we let the foreclosures go forward based on the facts that we do not (unintelligible)...

DAYBut if you don't have the facts -- if your record-keeping is a mess, how do you get the facts?

PINTO...stay for 16 months on many of the foreclosures in places like Florida and other states. And so the recovery that is starting in other states -- Arizona is -- had about as bad a situation as Florida. Yet the current, non-performing loan numbers in Arizona are half what they are in Florida. And Arizona is starting to recover. Economically, it's recovering. Florida, by the way, the jobs are growing, but there's still a lot that needs to happen on the housing front.

PINTOBut we're really just slowing down the recovery. And the studies that have been shown -- I mean, individuals that, you know, lose their homes -- and, again, I don't want to get into specifics 'cause I'm sure they are, you know, cases that are heartrending. But the -- you know, you move from one house as an owner where you don't have any equity to a house where you're renting for a period, and it could be a very similar house.

PINTOThere are studies that show there's a lot of that movement going on, and, in Phoenix, Ariz., that's what's happening. The market needs to adjust, and we have been artificially holding that back.

REHMAll right. And you're listening to "The Diane Rehm Show." Taking this back once again to the personal, here's an email from John, who says, "I'm currently trying to track down the paper on my mortgage, which apparently was mishandled by Bank of America. Will this broad settlement affect my individual right to relief? If so, will I have any sort of opt-out rights?" Kathleen.

DAYOne of the points, essential points, in the proposed settlement, as I understand it -- of course, it all depends on what happens finally, but -- is that banks will be obliged to provide documentation to homeowners in full, in a timely manner and that, upon request, they will have to show before they can foreclose that they have the proper paperwork, that they know who owns the mortgage, and things that -- so, yes, the answer to this person is yes.

DAYYou will be entitled to that. You always should have had it, and you could argue you were entitled to it. But this is going to be one of the terms of the settlement enforceable by a judge.

REHMAll right. And how will this proposed agreement be enforced, Brady?

DENNISWell, as I understand it, built into the deal is a full-time position that the banks will pay for through the settlement for a person to essentially oversee this deal and enforce the terms of it. And we learned that that person is the current North Carolina Banking Commissioner Joseph Smith, who, as you'll remember President Obama nominated to head -- the overseer of Fannie Mae and Freddie Mac. But he never got confirmed, so he went back to North Carolina, and, now, appears that he'll be overseeing this settlement now.

REHMDo you think that will work, Kathleen?

DAYYes. They -- the attorneys general have learned from an agreement that Nevada entered into -- some years back with Nevada where some of the ways to hold the -- Countrywide and Bank of America's feet to the fire weren't ironclad enough. So they've learned from that, and they've tightened it up in this settlement. They definitely, definitely have (word?).

REHMAnd, Brady -- sorry -- Ed Pinto, what do you think of the enforcement? Ed Pinto?

PINTOThe -- yeah, what the agreement says, I think the enforcement will probably go, you know, fairly well. But, again, one of -- the problem we run into is all of these programs -- let me just give you an example. Two weeks ago (unintelligible)...

REHMVery quickly, please.

PINTOI will. Two weeks ago, the president announced a new program. It wasn't ready for, you know, to be dealt with because the details were unavailable. But I'm sure millions of phone calls were placed to servicers. A week later, he announced more details, but still not ready to implement. Yet again, millions of phones calls get placed. We've done this time after time after time, and it really clogs up the process for the servicers, which are overwhelmed with all of the phone calls.

DAYThe system is less than perfect. No one is going to say it's worked smoothly. But let's not forget Obama inherited this problem. I mean, he inherited the biggest bailout, the biggest financial meltdown this country has seen since the 19th -- since the Great Depression. I mean, it's imperfect, but it's improved.

REHMAnd if, clearly, this discussion is going to continue with the millions of homeowners who are affected, I hope we can find some solution. Kathleen Day, Brady Dennis, and Ed Pinto, thank you all so much.

DAYThank you.

DENNISThank you.

REHMAnd thanks for listening, all. I'm Diane Rehm.

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