The views expressed in any article published in this blog are the author's own and do not necessarily reflect the views of Joseph Foster or Bob Lupoli.

Friday, February 10, 2012

$26 Billion Mortgage Settlement - Way Too Little & Way Too Late?

Joe: here is what Politico and other liberal sites are saying about the deal. Getting a check for $2,000, if you were foreclosed upon sure doesn't seem like much. –Bob


By Joseph Williams 2/9/12
For the Teddy Roosevelt-style populist message President Barack Obama’s putting together for his reelection campaign, Thursday’s $26 billion mortgage settlement with the nation’s five largest mortgage lenders has the potential to be a very big stick. But for many in the president’s base, it’s a reminder of all that he hasn’t done, and how long it’s taken him to accomplish this.


Critics of the deal have complained that it’s too small to give meaningful help to distressed homeowners, and — with millions of qualified claimants — officials said Thursday settlement payments average about $1,800 to $2,000 per home. But they stressed that the settlement is narrowly focused on foreclosure malfeasance only, and doesn’t preclude additional settlements, lawsuits or criminal penalties.

That wasn’t the only harsh reaction.

“The Banks Have Won — Homeowners Are Revictimized,” read one headline on Firedog Lake, a liberal blog and frequent Obama critic.

The banks have won, homeowners are re-victimized.

By: Cynthia Kouril Thursday February 9, 2012 6:47 am
By: David Dayen Friday February 10, 2012 7:04 am
By: David Dayen Friday February 10, 2012 10:42 am

In a Huffington Post story headlined, “The Top 12 Reasons Why You Should Hate the Mortgage Settlement,” Yves Smith wrote that the deal “stinks,” said the proposed enforcement is “a joke” and insisted banks put one over on the White House.

The Top 12 Reasons Why You Should Hate the Mortgage Settlement

Here are the top twelve reasons why this deal stinks:
1. We've now set a price for forgeries and fabricating documents. It's $2000 per loan. This is a rounding error compared to the chain of title problem these systematic practices were designed to circumvent. The cost is also trivial in comparison to the average loan, which is roughly $180k, so the settlement represents about 1% of loan balances. It is less than the price of the title insurance that banks failed to get when they transferred the loans to the trust. It is a fraction of the cost of the legal expenses when foreclosures are challenged. It's a great deal for the banks because no one is at any of the servicers going to jail for forgery and the banks have set the upper bound of the cost of riding roughshod over 300 years of real estate law.
2. That $26 billion is actually $5 billion of bank money and the rest is your money. The mortgage principal writedowns are guaranteed to come almost entirely from securitized loans, which means from investors, which in turn means taxpayers via Fannie and Freddie, pension funds, insurers, and 401 (k)s. Refis of performing loans also reduce income to those very same investors.
3. That $5 billion divided among the big banks wouldn't even represent a significant quarterly hit. Freddie and Fannie putbacks to the major banks have been running at that level each quarter.
4. That $20 billion actually makes bank second liens sounder, so this deal is a stealth bailout that strengthens bank balance sheets at the expense of the broader public.
5. The enforcement is a joke. The first layer of supervision is the banks reporting on themselves. The framework is similar to that of the OCC consent decrees implemented last year, which Adam Levitin and yours truly, among others, decried as regulatory theater.

“It is a fraction of the cost of the legal expenses when foreclosures are challenged,” Smith wrote, pointing to the average payout of $1,500 to $2,000 per victim. “It’s a great deal for the banks because no one at any of the [mortgage] servicers is going to jail for forgery and the banks have set … the cost of riding roughshod over 300 years of real estate law.”

Even on the Facebook page of New York Attorney General Eric Schneiderman — hailed on the left as a hero for forcing the banks to relinquish immunity from further prosecutions as part of the deal when he resisted signing on last summer — the feedback from liberals was harsh. Words like “compromise,” “epic fail,” and “sellout” dominated discussion posts on the deal.

“He seems to lead with compromise,” said one prominent Democrat. “There’s been a great deal of frustration with him on some issues, and also a whole host of issues where he doesn’t seem to advance the ball at all.”

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