For the most part, the big media and housing nonprofits have bought the government’s hype on the recent foreclosure fraud settlement, lauding it with great fanfare as a historic landmark.
It’s a good thing that not all our national landmarks are as phony as that settlement has turned out to be.
If they were, none of them would still be standing.
If big media had taken a more objective view, rather than just copying the authorities’ press releases, they might have chosen another, much less dramatic description, such as “yet to be released.”
The best description might take a few more words: “designed to make the Obama administration and state attorneys general look like they’re doing something while letting banks off the hook and leaving homeowners out in the cold and taxpayers and investors holding the bag.”
The settlement continues to raise more questions than it answers. For example, California’s attorney general Kamala Harris announced that the state would get $18 billion in foreclosure relief from the national settlement.
But then a couple of days later, Jeff Collins of the Orange County Register reported that Harris hadn’t offered a complete explanation.
As it turns out, the state might get only $12 billion.
The amount, Harris’ people explained to Collins, depends on which of two methods you used to calculate it.
“There are two sets of numbers,” said Linda Gledhill, a Harris spokeswoman told Collins.
Hah! Who knew?
One method calculates the cost of the settlement to banks, which as explained in the settlement’s “executive summary” are required to provide $25.2 billion in a variety of forms of assistance to borrowers. But providing that assistance doesn’t actually cost them $25 billion.
Apparently the settlement only requires the banks to pay out $5 billion in cash, with the balance consisting of a yet to be released complex system of credits that the the government will give the banks credit for offering the assistance, with details yet to be announced.
Meanwhile, the Financial Times (registration required) has been parsing the sparse publicly available details about the settlement. Their prognosis: The settlement shifts the costs of modifying mortgages from the banks to the taxpayers and to investors who bought securitized mortgages. As a result, it resembles another bailout more than it does a settlement.
Neil Barofsky, the former Inspector-General of the Troubled Asset Relief Program told the FT:
“If the banks are doing something under this settlement, and cash flows from taxpayers to the banks, that is fundamentally an upside-down result.”
And keep in mind that the actual settlement agreement still hasn’t been released yet, more than ten days after it was announced. What exactly is the hangup?
Do the authorities really expect us to take their word for it? How gullible do they think we are?
Remember how the 2008 bank bailout started: a three-page document submitted by the treasury secretary.
As my colleague Harvey Rosenfield warned when the President first announced the settlement, we’ll be in for a lot of surprises when the actual settlement is actually released, whenever that will be.
And something tells me they won’t be the good kind of surprises.