It’s finally here: a massive settlement, worth $25 billion, with five major banks over mortgage fraud abuses. The federal government and forty-nine state attorneys general—Oklahoma’s Scott Pruitt wouldn’t sign on because he doesn’t think banks should see any penalty—reached the agreement with JPMorgan Chase, Bank of America, Wells Fargo, Ally Financial and Citigroup last night, and the deal was announced this morning in Washington. A federal judge must still sign off on it.
We’ll have a lot on this settlement in coming days and weeks, and the details of this hugely complicated deal—the broadest settlement for wrongdoing since the tobacco lawsuit—are still coming out at a furious pace.
But here are some basic details. This is what’s good about the settlement:
Banks could end up paying out as much as $45 billion in benefits to homeowners. $5 billion will go to state and federal authorities, which can be used for legal aid for homeowners (more on this in a bit); $17 billion goes to homeowner relief; $3 billion goes towards refinancing; and $1 billion goes to the Federal Housing Administration. But under complicated formulas in the deal, homeowner relief could total as high as $45 billion, if all servicers participate, and there are incentives built in for the banks to disperse this money in the next twelve months.
The immunity the banks receive for this payment is fairly narrow, certainly in comparison to what had been rumored earlier. The banks will only be released from investigations and charges related to foreclosure fraud and robo-signing—not all the malfeasance leading up to the crash, like the origination and securitization of bad mortgages. This means that the new federal unit to investigate that fraud still has its authority intact.
Even in the robo-signing arena, New York Attorney General Eric Schneiderman will still be allowed to proceed with his MERS suit, which charges that banks used the private records system to fraudulently foreclose on thousands of homeowners. (We wrote about that here). The banks pushed this week to have that suit dissolved, but Schneiderman won.
While states can no longer sue the big banks for most foreclosure fraud, individual homeowners can—and that $5 billion to the states will be used for legal aid, so aggrieved homeowners can get a lawyer and pursue a case. “This will get a lawyer for everyone facing foreclosure in the state,” one source in an Attorney General’s office told Firedoglake. “This will stop every wrongful foreclosure.”
Here’s what’s not so good:
The total damages paid by banks, even if they reach the upper limit, is still much less than the $700 billion in negative equity in the housing market. So this hardly fixes the problem the banks essentially created.
Homeowners will get some help, but probably not enough. The New York Times estimates the average homeowner relief at $20,000—but the average underwater home is $50,000 deep. “I just don’t think it’s going to be a life-changing event for borrowers,” one expert told the Times.
When the deal calls for “750,000 people who lost their homes to foreclosure from September 2008 to the end of 2011” to “receive checks for about $2,000,” that’s got to be disappointing for those homeowners. Imagine a bank essentially took your home from you, likely through fraudulent means. How happy would you be with a check for $2,000?
The penalties banks will pay will come, in large part, from investor money. (About $5 billion of the settlement is actual money from the banks). For homeowners, aid is aid, but the more the banks face real, punitive damages themselves, the less likely misconduct will be in the future.
So as you can see: the deal is really good in terms of limiting immunity given to banks—which by several accounts is due to the work of Schneiderman and other aggressive attorneys general who refused to sign onto a bad deal—yet could go further in terms of help for homeowners.
In short: the biggest battles have yet to be fought. And that’s a significant victory, considering the initial deal was supposedly going to let the banks off the hook on just about everything.
“[This deal] gets a relatively small sum from the banks in exchange for limited immunity on their flagrantly illegal robo-signing—or forgery—of mortgage documents,” said Robert Borosage of Campaign for America’s Future. “The real question isn’t this ante. The real question is whether the federal investigation will finally turn over all the cards so we know just how bad a hand the banks are holding. Only then is there a possibility for real accountability – and real relief for homeowners.”