Last Thursday, the U.S. Government announced a $25 billion deal with the nations largest banks, over foreclosure abuses related to the housing bubble burst.
Since then, I’ve been promising to deliver my thoughts on the settlement, so here they are: in short, not good.
For starters, the $25 billion is a drop in the bucket - last summer alone these same lenders made $35 billion, so this penalty equates to nothing more than a brief time-out compared to what could have been. It’s been estimated that the fallout from the housing crisis has led to somewhere in the ballpark of $700 billion in negative equity in U.S. households, so any settlement that might be less than say, $175 billion, is a win for the banks.
Further, anyone foreclosed on between September 2008 & December 2010 is set to receive between $1500-$2000 – hardly adequate compensation, considering the fact that so many were either foreclosed on illegally. I think Yves Smith put it best in her blog on The Huffington Post:
“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.”
Also of concern, was any immunity lenders might receive from future prosecution as part of the deal. As the Los Angeles Times reported last Thursday:
“The settlement releases the banks from claims involving foreclosures, mortgage customer servicing and loan originations. However, authorities can still investigate various fraud claims, including those involving the mortgage bonds whose meltdown triggered a global financial crisis.
What's more, there is no criminal immunity or release from private claims by individuals or class-action lawsuits.”
So, it’s a bit gray. Some seem to think that there will be accountability for those responsible – particularly those in the finance industry who had significant involvement in helping to inflate the housing market bubble.
Most – especially those out in the blogesphere – seem to think including Nevada and Arizona’s suits against Countrywide in the settlement, will set a precedence that will make it difficult to go after lenders in some of the ancillary crimes committed in relation to the housing bubble, such as the MERS mess, robo-signing, HAMP/customer fraud violations, etc. Smith profiles “The Top 12 Reasons Why You Should Hate the Mortgage Settlement” in her blog and it’s hard to argue most of her points.
For my money, however, I would say that my views on this lie directly with the views of Brian O’Conner of The Detroit News. Last week, he wrote what I feel is a good an article as any explaining why he doesn’t like the deal. Check it out – it’s worth the read!
Friday, February 17, 2012
Thursday, February 9, 2012
President Obama: A plan to help responsible homeowners
In this past Sunday’s Detroit Free Press, President Obama submitted a commentary piece on the state of the current housing market in the United States and the urgent need to provide aid to struggling homeowners. Specifically, the importance of assisting those who borrowed responsibility and are now trapped in their homes, primarily due to those who acted irresponsibly.
The piece echoed his weekly address, delivered a day earlier.
The President intends to send a plan to congress, which will offer those responsible homeowners the chance to refinance their mortgage and save roughly $3,000/year on their payments.
To date, very few people have qualified for loan modifications and with millions of homes now worth less than the amount owed on them, refinancing wasn’t a realistic possibility. Now, it will be.
Keeping people in their homes should be a priority. It’s better for property values, it’s better for safety and it’s better for the greater good of our neighborhoods and communities. Few can argue that.
Additionally, he proposes a “Homeowners Bill of Rights” that will streamline and simplify the mortgage process – ideally, providing full transparency throughout the home-buying experience.
However, it’s up to Congress to pass his plan and the President encourages you to contact your congressional representative and urge your support. Take a look at this link to the Fact Sheet on the housing plan. If you agree with it, contact your representative and let them know.
The piece echoed his weekly address, delivered a day earlier.
The President intends to send a plan to congress, which will offer those responsible homeowners the chance to refinance their mortgage and save roughly $3,000/year on their payments.
To date, very few people have qualified for loan modifications and with millions of homes now worth less than the amount owed on them, refinancing wasn’t a realistic possibility. Now, it will be.
Keeping people in their homes should be a priority. It’s better for property values, it’s better for safety and it’s better for the greater good of our neighborhoods and communities. Few can argue that.
Additionally, he proposes a “Homeowners Bill of Rights” that will streamline and simplify the mortgage process – ideally, providing full transparency throughout the home-buying experience.
However, it’s up to Congress to pass his plan and the President encourages you to contact your congressional representative and urge your support. Take a look at this link to the Fact Sheet on the housing plan. If you agree with it, contact your representative and let them know.
Friday, February 3, 2012
Who Will Get the Better Deal on Housing – the 1% or the 99%?
Prior to last weeks State of the Union address, Van Jones and George Goehl wrote a blog on The Huffington Post questioning whether or not President Obama would make a “sweetheart” deal with the banks – one that would cost them far less than what they’ve cost the American homeowner, in turn for full immunity from future lawsuits.
Well, it’s been a week and no announcement has been made yet, but that doesn’t mean we’re in the clear. Big banks hold enormous power in Washington and from everything I’ve read and heard, it’s unlikely a deal that supports the 99% will ever be realized. Still, Jones & Goehl have a very good idea of what real accountability would look like and I think it’s worth sharing some of their thoughts. Here are some of the guidelines Jones & Goehl believe the administration should follow:
1. Banks must pay a minimum of $300 billion in principle reductions for homeowners with underwater mortgages and/or restitution for foreclosed-on families.
Agreed. I’ve long been an advocate for principle reductions and it increasingly seems that people are coming around to feel the same. As the blog notes, U.S. banks raked in $35 billion in profits last summer alone, while sitting on cash reserves of $1.64 trillion. With the economy still in shambles, those profits would have been significantly less had the banks not been provided with TARP money. Keeping banks strong was one reason the money was leant out, ensuring that banks remained solvent. However, the money was also intended to provide assistance to homeowners in need and only a fraction of the money made available was sent in that direction.
2. There must be a full-fledged, full-blown investigation into Wall Street financial fraud, by the Department of Justice.
I agree with this as well. It would be virtually impossible for us to avoid a scenario like this again in the future, if no one is held accountable. Those responsible need to pay for their crimes. Fines, jail time and the inability to be in a position to commit these crimes again are all methods that must be used. Sadly, to date no one from the SEC has lost their job due to their oversights, while few charges have been brought against those in the banking/finance industry, minus a handful of ponzi-schemers. Unacceptable.
3. There should be no civil or criminal immunity for the banks from future lawsuits.
Just like the second point, accountability is a must. A strong banking system is essential (no argument here) but regulations are essential. There is no reason we can’t have appropriate banking regulations in place – which still allow capitalism to thrive – but with the appropriate checks and balances. Banks that acted irresponsibly must be exposed and regulations based on those actions must be put in place. Once again, if we don’t learn specifically how we got here and hold those responsible accountable for their actions, it’s going to be extremely difficult to put the necessary measures in place to keep history from repeating itself.
Many people argue that President Obama has done a poor job in his handling of the banking/housing crisis. Standing up to the big banks, forcing accountability and not letting them off easy, will go a long way in reversing that assessment – especially, with the 99%...
Well, it’s been a week and no announcement has been made yet, but that doesn’t mean we’re in the clear. Big banks hold enormous power in Washington and from everything I’ve read and heard, it’s unlikely a deal that supports the 99% will ever be realized. Still, Jones & Goehl have a very good idea of what real accountability would look like and I think it’s worth sharing some of their thoughts. Here are some of the guidelines Jones & Goehl believe the administration should follow:
1. Banks must pay a minimum of $300 billion in principle reductions for homeowners with underwater mortgages and/or restitution for foreclosed-on families.
Agreed. I’ve long been an advocate for principle reductions and it increasingly seems that people are coming around to feel the same. As the blog notes, U.S. banks raked in $35 billion in profits last summer alone, while sitting on cash reserves of $1.64 trillion. With the economy still in shambles, those profits would have been significantly less had the banks not been provided with TARP money. Keeping banks strong was one reason the money was leant out, ensuring that banks remained solvent. However, the money was also intended to provide assistance to homeowners in need and only a fraction of the money made available was sent in that direction.
2. There must be a full-fledged, full-blown investigation into Wall Street financial fraud, by the Department of Justice.
I agree with this as well. It would be virtually impossible for us to avoid a scenario like this again in the future, if no one is held accountable. Those responsible need to pay for their crimes. Fines, jail time and the inability to be in a position to commit these crimes again are all methods that must be used. Sadly, to date no one from the SEC has lost their job due to their oversights, while few charges have been brought against those in the banking/finance industry, minus a handful of ponzi-schemers. Unacceptable.
3. There should be no civil or criminal immunity for the banks from future lawsuits.
Just like the second point, accountability is a must. A strong banking system is essential (no argument here) but regulations are essential. There is no reason we can’t have appropriate banking regulations in place – which still allow capitalism to thrive – but with the appropriate checks and balances. Banks that acted irresponsibly must be exposed and regulations based on those actions must be put in place. Once again, if we don’t learn specifically how we got here and hold those responsible accountable for their actions, it’s going to be extremely difficult to put the necessary measures in place to keep history from repeating itself.
Many people argue that President Obama has done a poor job in his handling of the banking/housing crisis. Standing up to the big banks, forcing accountability and not letting them off easy, will go a long way in reversing that assessment – especially, with the 99%...
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