A Big Victory in the Fight Against Foreclosure Fraud

Not to be confused with New York Attorney General Eric Schneiderman’s investigation of the mortgage industry recently announced by President Obama during the State of the Union, a join investigation by attorneys general in all 50 states which has been ongoing for several years has finally lead to a massive settlement with some of the nation’s largest banks regarding foreclosure fraud.

After months of painstaking talks, government authorities and five of the nation’s biggest banks have agreed to a $26 billion settlement that could provide relief to nearly two million current and former American homeowners harmed by the bursting of the housing bubble, state and federal officials said. It is part of a broad national settlement aimed at halting the housing market’s downward slide and holding the banks accountable for foreclosure abuses. [...]

The deal grew out of an investigation into mortgage servicing by all 50 state attorneys general that was introduced in the fall of 2010 amid an uproar over revelations that banks evicted people with false or incomplete documentation. In the 14 months since then, the scope of the accord has broadened from an examination of foreclosure abuses to a broad effort to lift the housing market out of its biggest slump since the Great Depression. Four million Americans have been foreclosed upon since the beginning of 2007, and the huge overhang of abandoned homes has swamped many regions, like California, Florida and Arizona. [...]

The settlement money will be doled out under a complicated formula that gives banks varying degrees of credit for different kinds of help. As a result, banks are incentivized to help harder-hit borrowers with homes worth far less than what they owe.

Pat Garofalo of ThinkProgress breaks down the details of the settlement.

49: States that have reportedly signed onto the settlement. The lone holdout is Oklahoma, as Attorney General Scott Pruitt (R) feels that the terms are too hard on the banks. Attorneys General Eric Schneidermann (D-NY), Kamala Harris (D-CA), and Beau Biden (D-DE) have thrown their support to the agreement, after opposing earlier versions for being too easy on the banks.

5: Banks covered by the settlement: Bank of America, Wells Fargo, JPMorgan Chase, Citigroup and Ally Financial.

$26 billion: The amount of the settlement. About $5 billion will be direct cash penalties, $1.5 billion of which will go directly to homeowners foreclosed upon between September 2008 and December 2011.

$17 billion: The amount of settlement money going toward reducing loan principal (the amount homeowners have outstanding on their mortgages) and mortgage modifications. Banks will not get dollar-for-dollar credit for every principal reduction, so HUD Secretary Shaun Donovan believes the deal will ultimately result in $30-$40 billion in real principal reduction.

$1,800 to $2,000: The amount going to homeowners who qualify for direct cash payments.

1 to 2 million: Homeowners expected to be aided by the settlement money, with one million receiving reduced loan balances or loan modifications and 750,000 receiving direct payments.

Will this help every single person in need or who has been marooned by robo-signing or predatory lenders? No, but it’s pretty damn significant. $26 billion in settlement and possibly as much as $30 to $40 billion in principle reduction is nothing to scoff at.

It would be inconceivable to me to believe that this won’t have a positive effect on the overall economy, because that large of a principle reduction will lower everything from mortgage payments to the cost of insurance, and it will put money back in people’s pockets.

The Right Wing will probably stomp their feet and call this a “shake down,” but according to the New York Times the big banks have already set aside the required assets.

The five mortgage servicers in the settlement — Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial — have largely set aside reserves for the expected cost of the accord and investors are likely to cheer its announcement because it removes one more legal worry for the industry, analysts said.

“I wouldn’t say it’s a panacea for the housing industry but it is good for the banks to get this behind them,” said Jason Goldberg, an analyst with Barclays.

A criminal investigation of the mortgage industry lead by New York Attorney General Eric Schneiderman on behalf of the Department of Justice is still on-going.

Frankly, I don’t think anyone can make a credible case that the Obama Administration is not taking significant steps to curb abuse by “the big banks” and Wall Street.

Some have expressed dismay that the administration didn’t act sooner, however my reply to that would be that universal healthcare reform and turning the economy around first was more important. The president may not have even had the support of the general public had such aggressive action been taken in late 2009 or 2010 when the economy was still deep in the toilet. The economy isn’t all roses now, but it has improved to the point now where a lot of conservative talking-points and rebuttals to this kind of action, which you know the “liberal media” would carry water for, are no longer fruitful.

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  • i_a_c

    One of the questions surrounding the settlement was whether banks would get full immunity as a result. It turns out, they only get narrow immunity for lawsuits involving the robo-signing scandal. Mortgages involved in securitization schemes can still be investigated.

    So no, this is nothing to scoff at, and it’s some closure for folks who got screwed by deceptive practices.

    On cue, the Super Progressives have already denounced this plan as well, saying it doesn’t go far enough, but once again they have joined the right-wingers in opposition to everything the administration does.

    • http://www.politicalruminations.com/ nicole

      “once again they have joined the right-wingers in opposition to everything the administration does. ”

      That’s because their real problem with him, same as with the Right, is the color of his skin.

      And i_a_c, don’t take this personally but the term “Super Progressives” always bothers me.

      I know that I and many others posting here are as Liberal/Progressive as it gets, including yourself, and that doesn’t prevent us from supporting him, he who is, by the way, the most Progressive president in most of our lifetimes.

      • i_a_c

        Thanks for telling me that it bothers you. In case anyone’s confused, “Super Progressives” is supposed to be a snarky way of referring to the firebagger purity left crowd. I’ll try to use more descriptive terms in the future.

    • ArrogantDemon

      As Rachel explained it, this is how the tobacco settlement went down, a massive payout, and were still liable for the shit they did if anyone were to sue them.

      They’re pissed at AGs Eric and Kamila for not completing their orgasmic poutrage and allowing themselves to be co-opted by the President.

      Trying to help those who were hurt is more important then the twisted sexual pleasure of some bloggers to stick it to Barack Obama, how about that?

  • http://profile.yahoo.com/V32UBN7LA5G5ODWLGYMWMQX3YA David

    I could not disagree more. The settlement is a HUGE travesty of justice against those who were wrongly foreclosed against. The amount involved is PEANUTS compared to the enormous damages illegally brought about by these banks. If make the points with specific facts in an article I just posted that I don’t have room for here:

    http://thegreatrecession.info/blog/2012/02/mortgage-foreclosure-fraud-settlement-is-payoff-to-bank-of-america-wells-fargo-chase/

    • http://www.politicalruminations.com/ nicole

      Whatever.

      You get what is possible. Be grateful that Pres. Obama gives a damn, that he is not a republican because from a republican, you would get ZERO.

      And screw rehashing the mess. Need someone to blame? Blame the deregulators including Clinton.

      • KXA

        “You get what is possible”????

        Imagine that slogan rather than “The audacity of hope”

        p.s. Wouldn’t it not be more reasonable if we blame the man who approves the deal???

    • i_a_c

      One thing that is important to note is that this does not prevent private lawsuits. It’s not unfathomable for a class action lawsuit to be brought against the banks. This is something that wouldn’t get resolved for several years, but our justice system is painfully slow at times.

  • MrDHalen

    You’re right Ashby; this is really going to help the economic recovery. President Obama has been governing to stop our freefall and restore economic confidence.

    I believe the President would use a second term and a stable economy to start fixing the corrupt practices of our financial sector using a scalpel, not a butcher’s knife.

  • gescove

    I need some time to think on this one. At first blush, $26B seems like a lot. But not compared to the $700B in home value lost due to these various schemes. BoA alone had profits of over $6B in just the 3rd quarter of last year. $2Grand to some folks who lost their homes to the banksters is small potatoes in this light. Plus the banks get three years to pay out and adjust mortgages. How about a settlement where we get to pound a stake through the heart of pure corporate evil and avarice instead? Still, I’m glad that there is not complete immunity for the banksters going forward.

    • JMAshby

      But let’s face it, expecting a $700B settlement nor a “stake through the heart of pure corporate evil and avarice ” are realistic.

      This settlement is unprecedented as it is, and it’s in a range of being a very real punishment while also not jeopardizing our currently fragile economic recovery.

      I also believe this is about as close as we’ll get to any form of admission of guilt by the mortgage industry.

      Maybe you’re right that it’s not good enough, but what is the other option? I think it’s pretty gutsy to do this during an election year anyway. The president is putting the country ahead of his campaign.

      • gescove

        I was not seriously expecting $700B or the stake… still, a person can daydream. After all, this was fraud on a massive scale that affected millions of homeowners. The major banks are swimming in profits and have the settlement cash already in reserve. They will get a major jump in stock price for wiping huge potential liabilities off the books for pennies on the dollar. And no one goes to jail. But, as you point out, what is the other option? The deal is a good one in that there is real relief to some victims reasonably quickly. Other lawsuits (MERS, tax fraud, and so on) can go forward. Individuals can still sue over foreclosure fraud and other causes. So on balance, a decent deal recognizing the art of what’s possible… with the hope that maybe one of the other lawsuits can pound that stake home.

  • http://twitter.com/KQuark KQµårk™

    To many progressives anything short of shutting all these banks down and putting everyone in jail is not enough.

    The settlement is what it is and many people will be helped by it.

    I always thought it was a difficult case to prove in court because the rules of the road were so lax so a settlement was the way to go.

  • D_C_Wilson

    So, will Fox spin this as Obama’s “failure to lead” or his “Chicag0-style gangsta strong-arming tactics”?

    • vgranucci

      I’ll vote for “Chicago-style gangsta tactics” from Faux News

    • ArrogantDemon

      He’s a weak failure, but a strong arm Chicago gansta at teh same time….

      FOX News, the only news source for schizophrenics