The following article by Elaine McArdle appears in the Summer 2012 issue of the Harvard Law Bulletin.
On Feb. 9, following 17 months of intense negotiations, numerous late-night conference calls and not a few fractious meetings where all seemed hopeless, five of the nation’s biggest mortgage lenders agreed to a historic $25 billion settlement that will provide financial relief to more than a million homeowners who were victims of improper foreclosures or other mortgage servicing abuses.
On the night the deal was sealed, a number of the key participants—many of them HLS grads, including then Associate U.S. Attorney General Thomas Perrelli ’91, chief negotiator for the federal government; Tom Miller ’69, attorney general of Iowa, heading the state attorneys general multistate investigation; and Helen Kanovsky ’76, general counsel for the U.S. Department of Housing and Urban Development—were on a conference call until 2 a.m.
Which just may explain how Brian Hauck ’01 became widely known—including to U.S. Attorney General Eric Holder Jr.—as the guy who wore pajamas in the Department of Justice the night the settlement was announced.
Is it true? Hauck, who, as Perrelli’s chief of staff, was charged with coordinating complex logistics among 49 state attorneys general, five federal agencies and the five mortgage servicers, laughs. “I’m not answering that,” says Hauck, who personally walked the 300-page consent judgments over to the U.S. District Court for the District of Columbia to be filed in early March. The District Court approved and entered the consent judgments on April 4, 2012.
Being involved in the landmark agreement—the largest federal-state civil settlement in history—was a career highlight for Hauck, who has since been named a deputy assistant attorney general in the Civil Division. But it was an incredibly complicated effort, involving scores of participants; Perrelli has described the mortgage settlement negotiations as the most complex he’s ever handled. In addition to officials of the federal government and attorneys general from every state except Oklahoma, the agreements involved Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial (formerly GMAC). Those five lenders will pay $5 billion to the states and federal government, and dedicate $20 billion to financial relief for homeowners, including reducing the principal or otherwise refinancing mortgages, and cash payments of about $2,000 each to homeowners wrongly foreclosed on. They must also identify military service members who have been foreclosed on in violation of the Servicemembers Civil Relief Act and pay them for the lost equity in their houses plus at least $116,785. The banks also agreed to implement new standards for mortgage loan servicing, including making foreclosure a last resort.
“The hard part was trying to bring along all these people and keep the whole group together,” Hauck recalls. “Each day, someone was galloping off in a different direction, and you had to not be discouraged by that, even though sometimes when they galloped off, they’d announce, ‘We are never coming back!’ You had to feel we can keep doing this, we can bring them along.” And, he adds, “It was worth it.”
Hauck was also happy to find that HLS had a major presence leading both sides of the deal. In addition to Perrelli, Kanovsky and Miller, George Jepsen J.D./M.P.P. ’82, attorney general of Connecticut, served on the negotiating committee, and Eric Schneiderman ’82, attorney general of New York, is co-chair of the state-federal Residential Mortgage-Backed Securities Task Force that is continuing the cooperative investigation into bank practices. On the other side of the negotiations, H. Rodgin “Rodge” Cohen ’68 represented Ally and Jamie Gorelick ’75 Bank of America.
In addition to the senior government officials and corporate lawyers, the settlement also involved other more recent alumni. Courtney Dankworth ’06, an associate at Debevoise & Plimpton who represented JPMorgan, was involved on the servicers’ side from the beginning, in October 2010, when the accusations of robo-signing—banks signing foreclosure documents without ensuring they were accurate—first emerged. Debevoise took the lead in coordinating the five lenders in their own discussions, which were incredibly complex in their own right, Dankworth says. But the meeting among all the parties brought it to a whole different level. She describes “one of those big tables that you see on TV when the U.N. is meeting,” with the representatives from the banks on one side and 10 or 12 AGs on the other with the federal reps: “so many players, and so many interests.”
Sitting at that table were two other young alums, who, along with Hauck, were the junior members on the core negotiation team: Damon Smith ’02, senior counsel to Kanovsky at HUD, and Sarah Apsel ’03, a senior policy adviser at the U.S. Treasury Department.
Sectionmates at HLS, Smith and Apsel first met in Professor Elizabeth Warren’s Contracts class (Apsel took the next year off to work for Gov. Roy Barnes of Georgia). It was an amusing moment, Smith recalls, when he realized, during an early conference call, that the representative from Treasury was the same “Miss Apsel” he remembered from class. “There were definitely times it seemed a bit surreal when we were involved in these discussions,” he says, especially because Warren, although not directly involved in the negotiations, was heading up the new Consumer Financial Protection Bureau, which was focusing on protecting consumers from abuses by the financial industry.
Apsel, who was part of the mortgage settlement team for nine months before being detailed in July 2011 by Treasury to the White House as a senior adviser for housing policy, brought to the negotiations her deep experience in helping set up the Home Affordable Modification Program launched in 2009 as part of the initial financial stability efforts by the new administration. The program created a standardized process for banks to follow in modifying mortgages for distressed homeowners. (Without such standardization, she explains, mortgage servicers fear being sued on behalf of their investors.) With Apsel’s guidance, those standards served as a baseline for the conditions the five banks will follow under the consent judgment.
The settlement has received much attention, but also much criticism. Smith, who served as a liaison to the banks in hammering out the specific language in the agreement, says: “I recognize there are critics on both sides of the ideological spectrum, who either feel that the banks paid more than they should have or feel the banks didn’t pay nearly enough. But I certainly recognize, having been in the room for that amount of time, that the negotiation resulted in a settlement that’s fair to all involved.”
Dankworth, too, acknowledges the critics, but hopes that “the settlement will put some issues behind us and improve the housing market at the same time.”
Says Hauck, “People who were foreclosed on are getting $1,500 to $2,000, which was not intended to be full compensation for someone who lost their home.” But, he adds, “For all these people underwater on their mortgages, those mortgages will be written down to much more affordable prices, so for those homeowners particularly, that will make a huge difference.”
“We ended up with a dollar amount that exceeded expectations,” and, importantly, a new, standardized infrastructure has been created for assisting distressed homeowners and helping avoid foreclosures, says Apsel. “It was a very significant accomplishment.”