By Rowan Wolf
Apparently being lauded as a “victory” is the settlement that has been reached with five major banks (Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial) on their fraudulent practice of “robo-signing” mortgage papers. The settlement is for a total of $26 billion – a sum that sounds big but isn’t.
There are potentially 4.3 million homeowners (and former homeowners) who are impacted by robo-signing. However, the practice actually dates back to “the late 1990s.”
Robo-signing is the practice of having employees, or contracted companies, impersonate bank officials (sometimes made up officials) and sign mortgage papers. This impersonation invalidates the the deeds, but also means that the lenders do not have valid ownership of all those collateral homes. So that number of 4.3 million only encompasses the most recent raft of foreclosures.
So, there is $26 billion for 4.3 million (plus) homeowners. But wait! It is not $26 billion, and it is not for those who have lost their homes.
Indeed, those who have already lost their homes are being offered a one time $1800 cash compensation. The only bright spot here is that they can refuse the payment and sue their former lender.
NPR had a decent report (below) that highlighted the key points. (States, Banks Negotiate Foreclosure Settlement, Inskeep and Noguchi, 2/9/2012)
- the banks get immunities protecting them from a variety of lawsuits;
- they pay $5 billion in cash penalties;
- they will write down $20 billion in loan amounts, “by reducing the principal or refinancing the loan;”
- there is an extra billion to settle a claim against Pacific Mortgage (if I am hearing the name correctly);
- the money is directed at homeowners currently “under water” and not those who already lost their homes; (Roughly 10 million homeowners owe more than their home is worth)
- banks will get credit for writing off $17 billion in loans. “It’s not money out of the bank’s pockets, it’s writing down assets that they own. And they’ll do another $3 billion on top of that in terms of refinancing.” (emphasis mine)
- “Banks have a lot of discretion in how they are going to do these deals.”
SO what we get, and what people who had their homes stolen from them get, is $1 billion per bank when they ate up over 4.3 million people’s life savings and homes. That is a bit over $1000 per home that they stole. They likely made $1000 on the loan origination alone. The rest is pure profit. All the money in interest, and then the reclaiming of the homes (for which they got money from us), and then the reselling of those homes which started the process all over again. THEN the people who lost everything are offered $2000 (at most) in shush money.
This is a win? It won’t even be much of a win for the limited number of under water homeowners who get “written down.”
And good for the economy? How? Just as I am left wondering how 50 YEAR mortgages (French for “death pledge”) help anyone in the long term – particularly with an economy that at best is stuck in first gear for the next five years (at least). Of course, mortgage means “death pledge” or “unto death” which with a 50 year mortgage is likely true.
Go rah-rah somewhere else. I can’t believe this is being played as a “win” for anyone except the big banks. Pretty good ROI (Return On Investment). Get hundreds of billions and pay five billion (1 billion per bank) . One might ask which fee they are going to raise to recoup the $1 billion per bank “penalty.” And they say crime doesn’t pay.
++++++++++++++++++++++ Update 2/9/12 +++++++++++++++++++++++++++
Graph from the NY Times. Article: States Negotiate $26 Billion Agreement for Homeowners