The details of the national mortgage fraud settlement with Bank of America, JP Morgan Chase, CitiGroup, Ally Financial and Wells Fargo are in, and nobody is happy except the banks.
Max’s initial reaction to the settlement:
The reports released today by the Investigator General for HUD with respect to the five major banks involved in the settlement with the
Department of Justice and the State Attorney Generals leave me with two major questions. First, how could so many bankers have
participated in such major frauds and illegal activities for so long? Second, why did these banks consistently hinder and delay the
investigators from the Office of the Investigator General for HUD? The only possible answer to both of these questions is that the level
of fraud uncovered so far is only the tip of a massive mortgage fraud iceberg.
Naturally, American Banker rounded up some self-described consumer advocates who “Praise Banks’ Big Role in Monitoring Mortgage Deal Compliance,” as if requiring the banks to self-police was some kind of step forward. Boot Camper and former state and federal prosecutor Mark Malone responded:
No bona fide consumer advocate who has been awake for more than 12 hours in the last 5 years can seriously believe that having the banks police themselves is credible. Time and again the banks have shown they are corrupt organizations. If anyone has any lingering doubt about it, they should read the March 12, 2012 HUD Inspector General’s report on Bank of America. The report reeks of obstruction of justice by the bank.
True consumer advocates from across the country are generally appalled (though most are not surprised) by the settlement, and view the banks as the big winners. Here are just a few comments from those who have been watching the banks and the settlement negotiations closely:
Rolling Stone political reporter Matt Taibbi:
It feels an awful lot like what happened here is the nation’s criminal justice honchos collectively realized that a thorough investigation of the problem would require resources they simply do not have, or are reluctant to deploy, and decided to accept a superficially face-saving peace offer rather than fight it out.
So they settled the case in a way that reads in headlines like it’s a bite out of the banks, but in fact is barely even that. There will be little in the way of real compensation for stuggling homeowners, and there are serious issues in the area of the deal’s enforceability. In fact, about the only part of the deal we can be absolutely sure will be honored in full is the liability waiver for the robosigning offenses.
Firedoglake questions the extent of the releases, discusses the “sleight of hand” that allows banks to expend far less than the $25 billion number being touted and criticizes the ability of banks to force consumers to waive legal rights in order to receive principal reductions under the settlement and the inadequacy of the reporting process.
Abigail Field begins her apt and extensive analysis with this:
Priorities are everything. Once priorities are set, coherent decisions follow. Looking at the money in the mortgage settlement reveals that the bankers’ priorities are embedded in its terms, not homeowners’, taxpayers’ or any other broad slice of ‘We, the People.’ Banker priorities, not public policy ones, will shape the “consumer relief”/”homeowner help” delivered by the deal.
In a second post, Field goes on to point out that the deal isn’t really done at all, and that some of the most important aspects remain to be seen:
Sadly, that’s what this “deal” does. This “deal” is a hybrid contract and term sheet, with all the crucial, operational aspects of compliance unresolved. A smallish to-be-dealt-with-later item is the timing for implementing the servicing standards. The biggie is the Work Plans; those have not been negotiated at all.
Yes, part of compliance has been finalized; the metrics, and the basic enforcement structure. But it’s not enough to have metrics; you also need processes for gathering the metric data and computing the results. Similarly you need more than a structure for enforcement; you need how-to details. The not-yet-existing Work Plan will cover all that. Worse, the negotiations will happen while the clock is ticking on the deal.
Max largely agrees with Field’s analysis, and added:
I am in total agreement with Abigail’s analysis but I think her analysis attributes a level of organization and competence to the servicers that isn’t justified, especially given the gross incompetence that’s been demonstrated in multiple areas by the servicers. I also agree with her points about potential limitations in the metrics and oversight, all of which are potentially compounded by other operational approaches outlined in the Enforcement Terms (Exhibit E), which should be read in conjunction with the metrics:
a) The metrics are on a national basis, so there could be idiosyncratic deviations from tolerances at a more localized level, whether geographic or portfolio type or loan type, that may not be unearthed in a national portfolio-wide roll-up;
b) Compliance assessments will be done by internal review groups at the servicers, though in accordance with a work plan framework created by the monitor and agreed to by the servicers;
c) Compliance will be evaluated on a sampling basis by the internal review group and in accordance with the work plan, so clearly certain categories of metrics should involve significantly expanded sampling and strong adverse sampling;
d) The monitor can engage a 3rd-party to audit or review a servicer’s work on the metrics only if he reasonably determines that the internal review group’s work cannot be relied upon or that an internal review group did not implement the work plan in some material respect, i.e. before digging further using his own professional firm he must first show a lack of reliability on the part of a servicer’s group doing the compliance work.
Some of the metrics clearly should have a zero percent tolerance both at loan level and for threshold reporting, and any violations – whether adding up to a loan-level violation or as breaching threshold tolerance levels as stated – should be remedied and any damages mitigated. Violations of the law aren’t transformed just because a reporting tolerance isn’t breached by some arbitrary metrics, developed by the servicers and their attorneys.
The bottom line: whatever the banking industry and the various government officials and agencies would have you believe, this settlement is great for the banks and not so great for homeowners, those who have already lost their homes to shady foreclosures, the economy, our justice system or anyone/anything else that should have been a priority.
The remedies are too weak, the penalties not significant enough to have a serious impact on any of the offending banks, and the monitoring system relies too heavily on the very institutions that not only perpetrated the crimes, but also have shown time and time again that they can’t be trusted to do what they’ve agreed to even while they’re theoretically being watched.
What provisions might actually provide some relief for homeowners will be handicapped by the freedom granted to banks to force homeowners to give up legal rights in order to receive principal reductions under the settlement, the lack of true enforcement mechanisms, the ability of banks to manipulate the system to ensure that funds come from other sources and to protect their own bottom lines at the expense of their victims and the open questions that will delay full implementation and eat into the agreed time frame.