Five big banks have agreed to a $25 billion settlement over mortgage abuses. There’s much reason to be suspicious about the deal. About $20 billion is supposed to be “spent” by Bank of America, JPMorgan Chase, Citigroup, Ally Financial and Wells Fargo to help underwater homeowners refinance and give relief to others in danger of foreclosure. What this really means is open to question. Only about $5 billion in bank money is really involved, a slap on the wrist. It’s unclear whether second liens will be addressed.
The best journalism on this issue has been committed by the blog Naked Capitalism. It points out that the settlement includes “roughly $17 billion is credits for principal modifications, which as we pointed out earlier, can and almost assuredly will come largely from mortgages owned by investors. $3 billion is for refis, and only $5 billion will be in the form of hard cash payments, including $1,500 to $2,000 per borrower foreclosed on between September 2008 and December 2011.”
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 $180,000, so the settlement represents about 1 percent 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.
As bad is the idea that this settlement will somehow “put a floor under the housing market” and somehow pave the way to recovery. The old housing boom isn’t coming back. We need to make the transition to a different economy.
The big banks and “financial services industry” have consistently flouted the rule of law in every aspect of the meltdown, and they’ve gotten away with it. Their enablers have been the Obama administration and, especially, Attorney General Eric Holder. Now almost all states have signed onto a bad deal. The only good news is apparently California and New York held out for being able to prosecute the banksters on other grounds. We’ll see if that happens, or if they get to keep paying out chump change to we chumps.
And Don’t Miss: Why Wall Street should stop whining || Matt Taibbi
Today’s Econ Haiku:
Penney for their thoughts?
Scared of facing a Target
Downtown will do fine