No love for $26B mortgage settlement
Critics are having a field day. Do you think the $26 billion deal will help homeowners injured by bank misbehavior? Do you think there was misbehavior?
This post comes from Marilyn Lewis of MSN Money.
For once, nearly everyone watching the foreclosure mess agrees on something: They hate the $26 billion agreement signed this month by five big banks, federal officials and state attorneys general.
You can see the details here. Briefly, the banks agreed to cut mortgage debt ($10 billion), refinance loans ($3 billion), pay foreclosed homeowners ($1.5 billion), fund other assistance programs ($7 billion) for struggling homeowners, and contribute to state legal services and housing counselors ($3.5 billion.) Most individual homeowners who get money from the settlement will receive about $2,000.
The settlement largely benefits people with mortgages owned by the banks -- B of A, Wells Fargo, Ally Financial, Citibank and JPMorgan Chase. Bank of America also will fork over an additional $1 billion to settle federal charges of inflated appraisals by Countrywide, which B of A now owns.
In exchange, the banks get immunity from state lawsuits over allegations they cut corners, made errors and disregarded legal procedures in foreclosing on homeowners. They're still open to lawsuits from individuals and to government charges focusing on other aspects of the mortgage mess -- fraud, for example.
One benefit is supposed to be: Now that the banks know what they'll have to pay, they can resume foreclosing after holding off more than a year to see the outcome of negotiations. Resuming foreclosures is good, the theory goes, because the sooner banks and defaulting homeowners get the process behind them, the sooner the market can recover. (Post continues below.)
Count the reasons
But back to the deal: Complaints run the gamut. Peeved critics complain that:
- The homeowners helped by the deal aren't necessarily those injured by banks.
- The banks were punished without an investigation.
- The deal will be hard to enforce.
- No one proved the bank problems actually hurt homeowners.
- The banks weren't punished severely enough.
- It amounts to a stealth bailout for banks.
- It's a Trojan horse that lets states regulate banking.
- Most mortgage holders, because their loans are owned or guaranteed by Freddie Mac, Fannie Mae or the Federal Housing Administration, are excluded.
Where to start? Let's look at a few of the more-common complaints. There's loud outrage over the idea that the settlement amounts to a wrist slap. Fumes AlterNet, for example, "The deal should be seen for what it is -- a relatively small ante by the banks handed out before the real cards are seen."
The New York Times' Gretchen Morgenson agrees:
There's no doubt that the banks are happy with this deal. You would be, too, if your bill for lying to courts and end-running the law came to less than $2,000 per loan file. … For most homeowners, it will barely move the needle.
Naked Capitalism wrote, in a post called "The top 12 reasons why you should hate the mortgage settlement":
We've now set a price for forgeries and fabricating documents. It's $2,000 per loan.
Among other reasons to hate the deal, adds Naked Capitalism blogger Yves Smith: The banks actually need to contribute only $5 billion of their own cash. Write-offs of principal will come from investors, "which in turn means taxpayers via Fannie and Freddie, pension funds, insurers, and 401ks."
Smith says the settlement fails to correct significant problems, including titles whose ownership can't be traced because bank notes were transferred incorrectly at the sale. He concludes:
The problems will fester and the housing market will continue to suffer. … This settlement is yet another raw demonstration of who wields power in America, and it isn't you and me.
Another common complaint is how little the deal helps homeowners and how few get anything from it. Payments of $1,500 to $2,000 will go to some 750,000 homeowners who lost homes to foreclosure. An estimated "one million (others are) expected to have their mortgage debt reduced by lenders or able to refinance their homes at lower rates," says The New York Times.
Those 1.75 million, consumer advocates say, are a small proportion of homeowners hurt by bank errors and sloppy procedures. These critics say that, despite the huge amount of money involved, it's too little to help heal the housing market or compensate injured homeowners. About 4 million homes have been lost to foreclosure since early 2007.
Writes the Detroit Free Press:
About 11 million households are underwater, meaning they owe more than their homes are worth. The settlement would help 1 million of them.
The government negotiators weren't ambitious enough, many say. The Times writes elsewhere:
In a sign of how pervasive the problems were, an audit by San Francisco county officials of about 400 recent foreclosures there determined that almost all involved either legal violations or suspicious documentation.
From the other side, The Wall Street Journal editorial pages charge the government with overreaching. No investigation was conducted and no one has shown that many if any homeowners were really hurt, says "Mortgage settlement or mortgage shakedown?" The deal:
… is an effort to provide an additional economic "stimulus" to housing without going to Congress.
… By cutting corners to achieve desired ends, government intervention has created clouds of uncertainty that will linger long after the crisis has passed.
One solid improvement
Will the settlement even be enforceable, the Daily Kos asks in "Will banks thumb their noses at mortgage fraud settlement?"
A HUD official told The Huffington Post, however, that the new guidelines require at least one solid improvement: Mortgage companies must assign each borrower a single point of contact at the bank.
"There is going to be one employee responsible for walking that borrower through the modification process to avoid previous communication problems," HuffPo says.
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