Corporate Crime

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.