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Smith writes: "As we've said before, this settlement is yet another raw demonstration of who wields power in America, and it isn't you and me. It's bad enough to see these negotiations come to their predictable, sorry outcome. It adds insult to injury to see some try to depict it as a win for long suffering, still abused homeowners."

Atty General Eric Holder and Housing Secy Shaun Donovan announce that Bank of America, JPMorgan Chase, Citigroup, Wells Fargo and Ally Financial will pay a total of $5b to the states. (photo: AP)
Atty General Eric Holder and Housing Secy Shaun Donovan announce that Bank of America, JPMorgan Chase, Citigroup, Wells Fargo and Ally Financial will pay a total of $5b to the states. (photo: AP)

Twelve Reasons to Hate the Mortgage Settlement

By Yves Smith, Naked Capitalism

09 February 12

ere 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.

6. The past history of servicer consent decrees shows the servicers all fail to comply. Why? Servicer records and systems are terrible in the best of times, and their systems and fee structures aren't set up to handle much in the way of delinquencies. As Tom Adams has pointed out in earlier posts, servicer behavior is predictable when their portfolios are hit with a high level of delinquencies and defaults: they cheat in all sorts of ways to reduce their losses.

7. The cave-in Nevada and Arizona on the Countrywide settlement suit is a special gift for Bank of America, who is by far the worst offender in the chain of title disaster (since, according to sworn testimony of its own employee in Kemp v. Countrywide, Countrywide failed to comply with trust delivery requirements). This move proves that failing to comply with a consent degree has no consequences but will merely be rolled into a new consent degree which will also fail to be enforced. These cases also alleged HAMP violations as consumer fraud violations and could have gotten costly and emboldened other states to file similar suits not just against Countrywide but other servicers, so it was useful to the other banks as well.

8. If the new Federal task force were intended to be serious, this deal would have not have been settled. You never settle before investigating. It's a bad idea to settle obvious, widespread wrongdoing on the cheap. You use the stuff that is easy to prove to gather information and secure cooperation on the stuff that is harder to prove. In Missouri and Nevada, the robosigning investigation led to criminal charges against agents of the servicers. But even though these companies were acting at the express direction and approval of the services, no individuals or entities higher up the food chain will face any sort of meaningful charges.

9. There is plenty of evidence of widespread abuses that appear not to be on the attorney generals' or media's radar, such as servicer driven foreclosures and looting of investors' funds via impermissible and inflated charges. While no serious probe was undertaken, even the limited or peripheral investigations show massive failures (60% of documents had errors in AGs/Fed's pathetically small sample). Similarly, the US Trustee's office found widespread evidence of significant servicer errors in bankruptcy-related filings, such as inflated and bogus fees, and even substantial, completely made up charges. Yet the services and banks will suffer no real consequences for these abuses.

10. A deal on robosiginging serves to cover up the much deeper chain of title problem. And don't get too excited about the New York, Massachusetts, and Delaware MERS suits. They put pressure on banks to clean up this monstrous mess only if the AGs go through to trial and get tough penalties. The banks will want to settle their way out of that too. And even if these cases do go to trial and produce significant victories for the AGs, they still do not address the problem of failures to transfer notes correctly.

11. Don't bet on a deus ex machina in terms of the new Federal foreclosure task force to improve this picture much. If you think Schneiderman, as a co-chairman who already has a full time day job in New York, is going to outfox a bunch of DC insiders who are part of the problem, I have a bridge I'd like to sell to you.

12. We'll now have to listen to banks and their sycophant defenders declaring victory despite being wrong on the law and the facts. They will proceed to marginalize and write off criticisms of the servicing practices that hurt homeowners and investors and are devastating communities. But the problems will fester and the housing market will continue to suffer. Investors in mortgage-backed securities, who know that services have been screwing them for years, will be hung out to dry and will likely never return to a private MBS market, since the problems won't ever be fixed. This settlement has not only revealed the residential mortgage market to be too big to fail, but puts it on long term, perhaps permanent, government life support.

As we've said before, this settlement is yet another raw demonstration of who wields power in America, and it isn't you and me. It's bad enough to see these negotiations come to their predictable, sorry outcome. It adds insult to injury to see some try to depict it as a win for long suffering, still abused homeowners. your social media marketing partner


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+56 # Virginia 2012-02-09 14:15
Amen. The Big Obama Sweep has effectively dumped on 19-36 million Americans who were the the occupants of the homes on the ground floor as the towers of the economy collapsed. $2000 is an absurd insult. These first 7 million foreclosure folks have a lot of money invested in their homes that has been essentially ignored.

This financial force majeure is a man-made disaster affecting many millions of Americans across the country with psychological damage, the loss of the homes, personal belongings, savings and security… divorce, and in some cases death (a lot more than has been reported) and is a full blown tragedy of epic proportion s from which many folks may never recover.

No counseling, no financial assistance, no investigation or consideration given for their investment - these 19+ million Americans were sacrificed for the banks and there is another tsunami of foreclosures on the way. See A Leopard Doesn't Change It's Spots on
+7 # RLF 2012-02-10 07:46
Banks's the Obama way!
+16 # Rita Walpole Ague 2012-02-10 10:45
Sorry to disagree, but the OhBombAh (the pres. I believed in and trusted, and now am so disappointed in) was in one day banks/Wall Streeters first, the next day more war, droning, military/indust rial/terror complex bowing down to, the next day more giving into and/or not stomping nearly hard enough on the oil/coal/fracki ng 1%ers. It all adds up to merely more of the Bushwhacking/Ko chsucking that has overtaken us all while we lived and played in La La Land.

Lots and lots to do, Wisconsin courage and determination style, in order to overcome our enslavement, restore democracy and equality, liberty and justice for all, and.....

+65 # bugbuster 2012-02-09 14:20
The correct term for it is "swindle."
+70 # Martintfre 2012-02-09 14:24
So how many low people in high Obama admin offices will it take to get people to realize that we are getting screwed by BOTH parties?
+22 # Bruce Gruber 2012-02-09 16:25
There has never been a question of whether money buys influence by owning both parties, their alleged leaders and the "specialists" appointed by those 'leaders'. "For a brief moment there was Camelot" ...and we know how that ended. Then there was "Hope" ...too bad we couldn't count on it.
+4 # Capn Canard 2012-02-11 08:11
Martinfre, of course! As far as I am concerned it is the movement of wealth in that wealth controls both parties. Obama, Bush, McCain, Santorum, Gingrich, Romney, etc, etc, ALL POLITICIANS are jackasses that do what they are told to do by wealth. It has always been so... Reagan really ramped it up from 1980 on and Clinton helped pound some nails into the coffin with Bush Jr performing sodomy on the middle class... meanwhile the clueless religious right celebrates, yea! WTF?!
+39 # DPM 2012-02-09 14:35
We must start calling for "someones" skin. Pick someone. It almost doesn't matter. Perhaps we need to set up "extra-judicial " public courts and try financial wrongdoers where everyone can see just what they have done. Sentence them, too. It may not carry the weight of "law", but it would go a long way in influencing public opinion and, perhaps, even our "legitimate" lawmakers.
+23 # sandyclaws 2012-02-09 15:59
This is the best Idea I have seen in a long time! Shine the spotlight on one person,pick one, and get the facts and you know you will get media coverage especially if you can get a name to be the judge and maybe some actors to be the defense and prosecutors! Run on the internet and pump it up to the media. Please someone with the ability jump on this. I'll bet that it would really get the ball rolling. When the President sees the positive reaction to this, maybe this will snowball and get the whole bunch of them!
Absolutely a great idea DPM!
+8 # hkatzman 2012-02-10 09:11
A People's Truth and Reconciliation Commission!
Ask homeowners what has happened to them. Put the pieces together and find culpability. Do this through local commissions in communities throughout the country. Publish the results. Uncover those who steal from the public. Those who feel as though they failed because of debt can understand how they were set up and robbed.
+33 # Barbara K 2012-02-09 14:39
The banks get a slap on the wrist and the consumer gets a slap in the face. Something is wrong with this picture. Some of these consumers are homeless and lost everything. The banks should pay the full amount they owe to each consumer. This happened under Bush & Gang, who looked the other way. The banks walked away with big money and huge bonuses. These banksters need to go to prison. ThisGitmo would be a good place for them.


our future is at stake
-9 # 2012-02-09 15:39
BarbaraK: A little sadistic? You think?
Read John Locke's comments on the Posts.
+2 # Barbara K 2012-02-09 17:16
diruab: No.
+47 # shortonfaith 2012-02-09 14:42
It's a complete insult to allow these guy to settle on anything. It's an insult to allow the "usual suspects" to be brokering a deal in the first place? These guys are all drinking buddies living the good life on what's left of Great American's lives.

It's all just BS & I felt this way before I read Smith's article. Thieves continue to brake every law imaginable with full DC immunity. Reagan might have been the jerk that originally sold us all out, but he put 1,000 bankers in jail? Obama & Holder actually help make deals for these guys & want the citizens to continue paying for it? These guys are Jerks with a capital J. And, I worked & voted Obama. How dare they allow this to continue? These are real American lives being sold down the river. These are families & children & entire life savings? Damn these people & their power to steal from us. I feel Obama & Holder will help to make slaves of us all. They continue to sell us out. This is a real, true, evil that just pretends it is on your side. This is worse than your enemy. And once again, I voted Obama, all the way.

Great article but it only reiterates what we all knew already? We just honestly didn't want to say out loud in front of the kids. It's every man for himself & don't believe anyone cares or there is a God or justice. Justice sold you out with CU. How many articles must we read about WS thieves receiving immunity & bonuses from DC? How many more before we do something?
+7 # jlohman 2012-02-09 19:15
Seems to me that innocent people don't "broker a deal." They should be locked up, but then they couldn't write campaign checks. Oh my.
+32 # sweetsali 2012-02-09 14:51
This is fraud perpetrated by the 1% who are royally pissed that they didn't get record bonuses this year...they should be glad not to be criminally prosecuted like so many "welfare moms." They might not survive San Quentin or Pelican Bay!
+24 # jlohman 2012-02-09 15:04
So, the politicians use taxpayer money to bail out the banks, and they use part of it to pay themselves bonuses and another part is used for campaign bribes. How much was used for the bank and -- like the loans they give to the public -- is that required to be paid back? And, NOW I understand why the financial market is the largest campaign contributor to both parties!!! Give a dollar and get back $100. Good deal.

Jack Lohman
+11 # giraffee2012 2012-02-09 15:24
Thanks for the facts - and clarifying what we all fear. The lesson to be gleaned is that a bad settlement is worse than no settlement. I made a marginally bad settlement in my lawsuit on 06. After reading your article I know not to take their current offer to settle an issue that recently arose.

Wish I could tell you more in comparison - but am not legally articulate. Thanks again! History proves to be our best lessons in life.
+15 # grouchy 2012-02-09 15:37
Great piece! Thank you!

Each of us taxpayers need to ask ourselves (over and over) why such nonsense like this can happen (the answer is in one of the comments above).

Remember to vote against the guys in congress who keep this kind of crap up!
+2 # bugbuster 2012-02-09 15:42
I believe that not all the states signed up for this. Didn't California opt out of this settlement?
+4 # Brian Flaherty 2012-02-09 17:41
California, after talking "big" for months, caved just like the rest of 'em!!!
+13 # Brian Flaherty 2012-02-09 17:51
I worked for many years as a plumber. . .and, trust me when I tell you: "I know S. . .T when I see it!!"

And, this is Prime Number One BS!!!!!

I have NEVER seen a President work so damn hard to be a "One Term Wonder!" and, I've seen more than a Dozen of them! (Had the opportunity to vote in most of those elections, too!)

I'd call Obama a S.O.B.. . .except I'd be insulting his mother. . .And, I don't believe she deserves it!

If anyone is offended because I don't appear to be adding any "intelligent comments" to the discussion, look closely. . .What else is there to say??!!

We've registered our "disapproval". . .We've sent him letters; and, LOTS of money. . .Nothing seems to get through his over-educated thick skull!

"WE" are the one's who require "protection" from the thieves and scoundrels . . .And, he and his appointed lackeys in the Injustice Dept have conjured up another "Gert Out of Jail Free" card for "The High and The Mighty" [Apologies to Ernest K Gann]. ..
+4 # Robt Eagle 2012-02-09 16:54
Why isn't Eric Holder going after Barney Frank and Christopher Dodd, the CEO's of Fannie and Freddie, the chairman of the SEC, head of FINRA, CEO's of S&P, Moody's and Fitch for failing to do the oversight they were empowered and paid to do for the American public??? Holder is a joke and Obama is trying to show compasion, but doing a lousy job of it like all his policies. We need a new sherrif in town (Federal level) and an enforcer that has the balls to go after the crooks who headed up the banks and the auto makers who drove this trainwreck.
+14 # CandH 2012-02-09 17:05
YS nails these sons of beeaches to the wall again. Excellent analysis!

"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."

This is profound, earth shattering stuff kids. How does the US real estate market work going forward in an obviously criminally fraudulent laden financial environment such as this? The ramifications, oh, the ramifications.. .
+12 # wleming 2012-02-09 17:41
obama, geitner, summers et. al. prove once again that main street takes the fall
let us sing of money and banks
of those who swindle and then refill their tanks
of those for whom there is no penalty
who push ahead with lies and perjury
so lets thank the lobbies and their "ists"
who cut the deal, and then the wrists
+5 # Exotikat 2012-02-10 06:37
I was watching Rachel Maddow last night and she was interviewing Eric Schneiderman. The interview challenges the opinion in #8 of this piece. According to Schneiderman, there was no settlement, and yesterday's news is just a down payment. Again, according to Schneiderman, the banks are still liable for $100s of billions in potential liability and their employees subject to imprisonment.
+2 # KittatinyHawk 2012-02-10 11:02
Will see, hoping it is true and payable by Fall 2012
+4 # CandH 2012-02-11 12:39
YS covers this aspect today:

"And if you read the template for the AG press release carefully, you can see how it finesses where the pact stands. And today, American Banker confirmed that the settlement pact is far from done, and the details will be kept from the public as long as possible, until it is filed in Federal court (because it includes injunctive relief, a judge must bless the agreement).

This may not sound all that important to laypeople, but most negotiators and attorneys will react viscerally to how negligent the behavior of the AGs has been. The most common reaction among lawyers I know who been with white shoe firms (including former partners) is “shocking”. Let me explain why."

Go to the link to see the explanation:
+7 # KittatinyHawk 2012-02-10 11:03
Go and back up Credit Unions. Ours has lower mortgage interest. Higher bank interest...but then that is what Unions are about...helping families. Working for America
+4 # David Starr 2012-02-10 13:16
Adding (or reiterating) to the article of this "McDeal," according to George Zornick, a writer of The Nation in his article "Obama is on the Brink of a Settlement With the Big Banks-and Progressives are Furious": "The rumored details have always given progressives heartburn: civil immunity, no investigations, inadequate help for homeowners and a small penalty for the banks." Against Obama's "populist message against big money and income inequality-the deal may be here, and it's every bit as ugly as progressives feared." Zornick says that, "Five banks-Bank of America, JPMorgan Chase, Wells Fargo, Citibank and Ally Financial (formerly GMAC)-would pay the government $25 billion." But "[c]ivil immunity would be granted to the banks for any role in foreclosure fraud, and there would be no investigations. " Further, "the dollar amount is inadequate to the tremendous loss of wealth via mortgage fraud," "banks might be allowed to use investor money instead of their own funds," & "the victims of mortgage fraud might not see enough relief." Senator Sherrod Brown asserted that the McDeal is "not much more than a slap on the wrist" & that banks are "now apparently too 'big to jail.'" Zornick jusitfiably asks "with no real punishment for widespread damaging fraud, what are the incentives on Wall Street not to engage in similarly destructive practices once again?" To add: As long as reform for peoples' interests is attempted w/in the confines of capitalist rule, it will happen again.

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