In another "ritualized sellout yet again presented as a boon for consumers," two multibillion dollar settlements involving egregious and illegal lending practices were announced Monday, dwarfing consumer compensation in respect to the substantial bailout money big banks have pocketed since the financial crisis.
The significance of the settlements is that they illustrate the extent of the banks’ role in the mortgage crisis and the subsequent meltdown of the American economy, "from the making of loans to the seizure of homes"; however, the actual amount merely adds up to the "cost of doing business of banks" says Real News' Paul Jay.
The first agreement, announced Monday, is a mortgage fraud settlement between Bank of America and Fannie Mae; Bank of America and their subsidiary Countrywide Financial sold the national guarantor, Fannie Mae, bad loans—causing Fannie Mae to subsequently suffer immense losses in the wake of the subprime mortgage crisis.
The information on the mortgages was allegedly falsified and misrepresented during the application process—practices that contributed substantially to the financial crisis. Countrywide, which Bank of America hastily purchased in 2008, was "notorious for its fraudulent loans" and has come to symbolize the reckless lending practices of the real estate bubble.
In the agreement, Bank of America agreed to pay Fannie Mae $10bn and also buy back $6.75bn of bad mortgage loans.
Completely ignoring the millions of affected homeowners, those payments will go straight from Fannie Mae to the US government, who "long ago barred [them] from keeping any profits" the Guardian writes. Adding, "The deal between Bank of America and Fannie Mae contains no mechanism by which the money would reach the homeowners who signed bad loans."
The second settlement involves foreclosure abuses on the part of ten US banks including Bank of America, JP Morgan Chase, Wells Fargo, Citigroup, MetLife and five others. Focusing on the gross abuses on the part of banks during the foreclosure process, a report by Pro Publica explains that the settlement was a cover-up for a failed independent review of the culpable lenders:
The Independent Foreclosure Review was supposed to be a full and fair investigation of the big banks' foreclosure abuses, and it was trumpeted as the government's largest effort to compensate victimized homeowners. Federal regulators, who designed the review, forced banks to spend billions to carry it out. Millions of homeowners were eligible and hundreds of thousands submitted claims. But Monday morning, the very regulators who launched the program 18 months ago announced that it had all been a massive mistake and shut it down.
Instead, 10 banks have agreed to pay a total of $3.3 billion in cash to the 3.8 million borrowers who had been eligible for the review. That's an average of around $870 per borrower. But typical of a process that's been characterized by confusion, delays and secrecy, regulators said the details of how the money will be doled out were not yet available.
Though the deal, announced by the regulatory Office of Comptroller of the Currency and the Federal Reserve, is reportedly an $8.5bn settlement, only $3.3bn will go directly to eligible borrowers while the remaining $5.2bn will go to banks in the form of "credits" for actions they take to avoid foreclosures, such as providing loan modifications.
"It’s bad enough to see long suffering homeowners take it once again in the chin, thanks to the way the bank regulators prostrate themselves before their supposed charges. It adds insult to injury to see this type of ritualized sellout yet again presented as a boon for consumers," writes Yves Smith at Naked Capitalism.
The settlement is in specific regard to the practice of 'robo-signing' where "big banks, swamped with thousands of foreclosure filings, allegedly used an automated system to sign off on foreclosures, rather than personally reviewing each case," Al Jazeera explains.
This complete lack of review often resulted in excessive mortgage fees, improper documentation of mortgage modifications and, according to Political Economy Research Institute economist James Heintz, "many foreclosures went forward when they didn't really have to happen."
Yves Smith compares the paltry "less than $2,000 to perhaps $8,500" settlement in comparison to some of the harm some borrowers have suffered with a statement posted by one of the file reviewers.
For example, in one case I reviewed the borrower paid approximately 25K to reinstate his mortgage. Then he began to make his mortgage payments as agreed. Each time he made a payment the payment was sent back stating he had to be current for the bank to accept a payment. He made three payments and each time the response was the same. Each time he wrote and called stating he had sent in the $25K to reinstate the loan and had the canceled check to prove it. After several months the bank realized that they had put the 25K in the wrong account. At that time that notified him that they were crediting his account, but because of the delay in receiving the reinstatement funds into the proper account he owed them more interest on the monies, late fees for the payments that had been returned and not credited and he was again in default for failing to continue making his payment. The bank foreclosed when he refused to pay additional interest and late fees for the banks error. I was told that I shouldn’t show that as harm because he did quit making his payments. I refused to do that.
The OCC officials said the details of how the $3.3bn will be distributed had not been finalized, but Prob Publica reports, "no case-by-case effort will be made to sort out who was really the victim of a bank error or abuse and who was not. Instead, basic criteria will be used to assign homeowners to a category, and everyone in the same category will receive the same amount."
Heintz compares the bank bailout with the settlement to actual homeowners:
$7.7 trillion dollars to financial institutions (with the largest banks receiving 60 percent) versus a settlement of [$3.3] billion to families and households. In terms of proportionality, it's just not there. Banks are just not paying enough for what they have done.
There have been no bailout for [households]... It is a drop in the bucket at the very best.
The Guardian adds, "These settlements are good for banks, who are now able to put part of the mortgage mess behind them, and good for regulators, who can claim a victory. They are less good for homeowners, who often get caught up in red tape when trying to get mortgage help."
"This was supposed to be about compensating homeowners for the harm they suffered," said Diane Thompson, a lawyer with the National Consumer Law Center, in response to the foreclosure abuse settlement.