Crappy mortgage fraud settlement deal gets worse

There have been new reports of an evolved deal between Iowa Attorney General Tom Miller, the Obama Department of Justice, and the nation’s five largest banks regarding the 50 44 state investigations into robosigning and other fraudulent behavior by the banks. New developments include expanding the release beyond robosigning to cover fraudulent mortgage orgination as well. Professor Adam Levitin has a pretty definitive takedown of the various components of the deal that have been leaked.

One of the pieces of the deal, according to Shahien Nasiripour of the Financial Times, is to include about $2 billion for refinancing borrowers who are current but underwater.

About 150,000 borrowers could benefit from the refinancings, as the vast majority of US home loans are owned by investors and government-controlled mortgage giants Fannie Mae and Freddie Mac. By comparison, nearly 11m US borrowers are underwater, according to CoreLogic, a data provider. The average underwater homeowner owes $258,000 on his mortgage.

So the plan here is to help around 1% of homeowners who are underwater. That’s before we give any consideration to the administration’s horrible track record when it comes to actually implementing programs aimed at helping homeowners to their full capacity. Levitin thinks it will, at best, help around 60,000 homeowners.

And again, what are the states and the federal government giving up in exchange for a couple billion that will barely help any homeowners? Levitin:

now we learn that this settlement is going to include a release of origination fraud claims against the banks in exchange for an additional $2B-$4B. It’s Keystone Cops worse than Keystone Cops. For a while the AGs just looked incompetent in the settlement negotiations. But now it’s gone from incompetence to outright malfeasance. To contemplate a release of origination claims that have never been investigated for an additional $4B is so shocking that I have trouble finding genteel words to say about it. To paraphrase Rep. Elijah Cummings, “Is Tom Miller a chump?” Why on earth does he feel compelled to even discuss such a patently bad deal?] [Emphasis original]

It’s truly hard to capture how bad a deal this is on many levels. It’s a bad deal for homeowners, who aren’t going to get the help they need to keep their homes. It’s a bad deal for the rule of law, where yet again massive corporate criminality is swept under the rug (remember FISA in 2007-2008?). It’s a bad deal for investors, who will likely lose out by not having the knowledge that would come from attorneys general bringing civil suits in every state. It’s just a bad deal.

I’m not convinced that this will actually happen. We’ve heard about imminent deals coming out of the Miller talks for almost as long as they’ve been going on. Thanks to the leadership of AGs who care about their job responsibilities – people like Eric Schneiderman, Beau Biden, Catherine Cortez Masto, Lori Swanson and others – the odds of their being a deal is greatly reduced. But the fact that Miller and the Obama administration keep trying to give away more to get any deal for the banks is sickening. This won’t help anyone, that is, unless you think providing protections to keep bank executives rich and out of jail an important service of government.

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