Two striking details reveal the true nature of the highly touted national foreclosure settlement.
The first is that the banks admit no wrongdoing.
Here’s a sample of the illegality and the misconduct with which the federal authorities and the 49 state attorneys general charged the banks. It goes way beyond robo-signing, the banks’ widespread practice of using forged or unverified documents in the foreclosure process:
▪ Providing false or misleading information to borrowers,
▪ Overcharging borrowers and investors for services of dubious value,
▪ Denying relief to eligible borrowers,
▪ Foreclosing on borrowers who were pursuing loan modifications,
▪ Submitting forged or fraudulent documents and making false statements in foreclosure and bankruptcy proceedings
▪ Losing or destroying promissory notes and deeds of trust,
▪ Lying to borrowers about the reasons for denying their loan modifications,
▪ Signing affidavits without personal knowledge and under false identities,
▪ Improperly charging excessive fees related to foreclosures
▪ Foreclosing on service members on active duty
▪ Making false claims to the government for insurance coverage
But the feds and the state attorneys general want to let the banks off the hook without having to admit to any of it.
This is the kind of no-fault settlement for which the Securities and Exchange Commission has increasingly come under fire, [but which companies agree to as a cost of doing business. For example, the national foreclosure settlement only costs the banks about $5 billion in real money, a drop in the bucket compared to their profits. It’s not enough to actually deter the banks from future bad conduct.
The rest of its estimated $25 billion value is supposed to be determined by a complex series of credits that the bankers get for what they should be doing anyway – modifying mortgage loans and offering principal reductions to underwater homeowners.
The authorities still have to get a judge in Washington, D.C. to sign off on it.
Too bad the settlement wasn’t presented to U.S. District Judge Jed Rakoff in New York, who’s been adamant in questioning no-fault settlements and refusing to rubber stamp them.
His comments, though directed at the SEC, are relevant to the national foreclosure settlement.
Rejecting an SEC no-fault settlement with Citigroup last November, Judge Rakoff said that such settlements are “hallowed by history, but not by reason” and create the potential for abuse because they ask “the court to employ its power and assert its authority when it does not know the facts.”
Rakoff questioned what government officials would get from the settlement “other than a quick headline.”
Though he was talking about an SEC settlement with Citigroup, he could have been describing the national foreclosure settlement, which exacts too little a price from banks for their wrongdoing and offers too little to homeowners.
The settlement provides that banks will spend $17 billion on principal reductions and another $3 billion on refinancings. But according to an analysis by the Brooking Institute’s Ted Gayer, less than 5 percent of the nation’s 11.1 million homeowners will qualify for help under the settlement.
It also presents the general laundry list of wrongdoing without any specificity – it names no names or specific facts. One of the big criticisms of the foreclosure settlement is that the authorities didn’t do a real law-enforcement style investigation to assemble a case before sitting down to “negotiate” the settlement, weakening their hand with the banks.
The second aspect of the foreclosure settlement that reveals its weakness is how the authorities are suggesting they’re going to monitor whether the banks will comply. Just exactly how are we going to make sure that the big banks deliver even the relatively small number of loan modifications and principal reductions they’ve promised?
According to the settlement, the banks themselves are going to self-report on their progress.
Then an “independent” monitoring committee is going to check these reports, and then levy fines if the banks aren’t hitting certain targets. But the monitors consist of the same regulators who have already facilitated the banks’ earlier failed foreclosure mitigation efforts, and have touted this current settlement as a “landmark.” Having already proved their reluctance to get tough on the banks so far, how much incentive do they have to get tough with banks later on?
It sounds flaky to me.
The whole robo-signing scandal stems from banks use of forged, false or unverified documents, poor recordkeeping and the inability of anybody in the courts or government to get the banks to follow the law or hold them accountable.
On top of that, when it comes to keeping their previous commitments to deliver loan modifications in earlier attempts to address the foreclosure crisis, the banks have failed miserably. The investigative journalism outfit Pro Publica has assembled reams of data about the shortcomings of previous government-sponsored loan modification efforts.
So now we think it’s a good idea for them to police themselves?
The entire settlement looks more like the government’s latest efforts to prop up the nation’s floundering too big to fail banks than a real attempt at either law enforcement or robust help for homeowners and the housing market.
Where is Judge Rakoff when we really need him?