From Prosecutions to Peanuts

It was only last December that the head of a 50-state attorney general investigation into foreclosure fraud boldly told homeowner advocates, “We will put people in jail.”

That was Tom Miller, Iowa attorney general, who added, “One of the main tools needs to be principal reductions, just like in the farm crisis in the 1980s…there should be some kind of compensation system for people who have been harmed…And the foreclosure process should stop while loan modifications begin.  To have a race between foreclosures and modifications to see which happens first is insane.”

That was then. Now Miller is backing off his tough talk, replacing it with a strategy of negotiating with the big banks and a bunch of federal agencies to come up with a settlement.

The amount of the potential settlement is $20 billion, according to press reports.

Gone is any notion of prosecutions.

There’s been a lot of discussion about whether this amount is too high or too low. The banks contend that they might have been sloppy about their paperwork but they foreclosed on only a few people who hadn’t been making their mortgage payments. No harm, no foul.

But homeowner advocates and critics are outraged, arguing that the banks are guilty of more than slovenliness, they violated laws intended to protect consumers. You can’t pass laws that require banks to follow certain procedures and then allow the banks to flout them. That reinforces one of the most corrosive aspects of the bailout and its aftermath – that the system is rigged so that the banks don’t have to follow the law.

Not to mention that $20 billion is pocket change to the big banks and won’t go far in modifying the mortgages that they refused to touch so far.

In addition, any fund that is controlled by the banks rather than a responsible government agency is a recipe for continued inaction by the banks.  See the disastrous Obama Administration HAMP program, which is somewhere between an abject failure and an actual scam that rips off homeowners.

Miller’s retreat is not the only distressing signal coming from the foreclosure front. Here in California the new state attorney general, Kamala Harris, made the strong protection of homeowners in foreclosure a key plank of her campaign. Yet her office recently signed off on a feeble $6.8 million settlement of a lawsuit against Angelo Mozilo and another top official of Countrywide Financial who presided over that company’s orgy of subprime lending before the financial collapse.

$5.2 million of the money goes into a restitution fund for victims. Mozilo and his president, David Sambol, admitted no wrongdoing. They’re not on the hook for the money- Bank of America, which bought Countrywide will pay it for them.
As David Dayen points out on Firedoglake, the settlement was probably inherited from her predecessor, the present governor, Jerry Brown. But that doesn’t mean she has to tout such a pittance as some great victory for the state.

It’s just a very small drop in a bucket with a very big leak in it.

If you live in California, you can call Harris’ office and suggest she stop caving into predatory lenders and start living up to her campaign promises.

Wherever you live, please contact your attorney general and remind them they are, after all, not the bankers’ buddies, but the people’s prosecutors.

Here are numbers where you can reach your state attorney general.

 

Around the Web: On to Financial Reform

With the Obama administration and the Democratic leadership declaring historic victory on health care reform, the next big item could be fixing the troubled banking system.

It could make the battle over health care look like a walk in the park. The financial industry, Republicans and Blue Dog Democrats are all lined up to kill or weaken it.

They’ve already succeeded in getting Sen. Chris Dodd to weaken his reform proposal, which the Senate Banking Committee passed Monday on a 13 to 10 party line vote. Here’s the Atlantic’s take, including what Dodd had to say Monday.

Getting Dodd to soften his stance probably wasn’t that tough. He’s traditionally a staunch ally of Wall Street and only took a strong stance when it looked he was going to have to face angry voters. But then Dodd dropped out of the race, became a lame duck and returned to form as the financial industry’s best friend.

For example, Dodd has abandoned support for a strong independent financial consumer protection agency, instead placing it within the Federal Reserve, which has ignored consumers in the past even though it had authority to protect them. In National Journal’s Clive Crook’s assessment, Dodd’s proposal will enshrine “too big to fail” banks in law rather than fix the problem.

Now the full Senate will consider it. Here’s Barry Ritholtz’s analysis of what should be on the final bill.