Another Bad Bank/Housing Deal Coming Our Way
The latest trial balloon in the robosigning fraud cases is being pushed by Housing Secretary Shaun Donovan. It is as foolish and reckless as the mortgages underlying the crisis in the first place.
The terms which have been floated look something like this:
• $25 billion “fine”
• Up to another $17 billion used to reduce principal for homeowners facing foreclosure
• Fund for homeowners who were victims of improper foreclosure practices — 750,000 families receiving about $1,800 each.
• Principal reduction of $20,000;
• Halt all investigations into Robo-Signing;
• NO CRIMINAL PROSECUTIONS FOR ILLEGAL BANK ACTIVITIES
This deal manages to do just about everything wrong it possibly could:
1. The management of public companies are using shareholder monies to buy their ways out of criminal prosecution. They are stealing money from shareholders to give to AGs to prevent being sent to jail.
2.We still do not know who ordered the illegal robo-signing, the false notarizations, fraudulent written statements to courts, and perjury. Those persons need to be brought to justice.
3. Home owners who were victims of illegal foreclosures can easily access the courts to sue for damages — some of the more egregious cases have resulted in fast $1 million+ settlements;
4. Incidences of active servicemen on assignment being foreclosed upon in violation of law should generate very significant fines (I would let Special Forces handle it themselves, however they see fit, but I’m a bastard).
5. Principal reduction of $20,000 is meaningless; it solves nothing for the 25% of the homeowners with mortgages who are underwater. And, it rewards people who made an error in judgement when they bought more house than they could afford.
This proposed settlement confirms for me two additional things: First, it shows what happens when we bailout Banks — we see the same recklessness that led to their near denouement continue in other areas. Second, it incentivizes the government that bailed them out in the first place to protect their sunk costs — they tend to go easy on the banks to protect their “investments.”
Sorry , but this deal stinks all around
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January 24th, 2012 at 7:29 am
U.S. House of Representatives
Washington, DC 20515
(202) 224-3121
TTY: (202)-225-1904
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January 24th, 2012 at 7:38 am
BR, I don’t understand why you don’t think this would be a good deal for everyone. After all, look how well the Tobacco settlement worked out (and they only knowingly sold poison to millions of people — thousands upon thousands of whom died slow and painful deaths).
You need to learn to keep things in perspective.
Sheesh.
January 24th, 2012 at 7:39 am
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January 24th, 2012 at 7:43 am
Maxine likes it, the old saw of the innocents being forced to take on “exotic products.” Becky quoting the Tea Party didn’t help in this morning’s repartee: red flag to a bull. Someone musta underlined “exotic products” on the analysis copy as they tried to sell it.
I’ve written it here before, we should not allow the AGs to settle with these “banks.” And it’s partially because individual states are in dire straits (dire states) that they depend on the same banks for muni issuance. This is the price of these financial supermarkets, you end up being unable to enforce the law because you’re trying to slap the left hand while getting a rub from the right hand.
Another Maxine quote: “This is about income equality.” and “This is about fairness.” Showing their c-c-c-colors. Colors. (great film)
Evidently, “This is not about justice.” and “This is not about stopping this from happening again.” and “This is about rocking the vote.” Are more appropo.
January 24th, 2012 at 7:46 am
The most obvious aspect of this crappy deal is how completely the elected representatives and regulators are bought by monied interests. The other thing this shows is how useless the politicians are – the reason for the push to get it settled has as much to do with Obama having a political talking point to say what a hero he is for fighting for the people against the banks. And he relies on the fact that most people are either too stupid, not paying close enough attention or so politically partisan they can’t think straight.
We desperately need to get money out of politics and across the board term limits. We need to elect representatives who will follow the rule of law and not be corrupted by special interests. We also need to stop the revolving door between regulators and the companies they regulate. As David Stockman says, we have an entrenched system of crony capitalism.
January 24th, 2012 at 8:17 am
The Feds are negotiating with the attorneys general, so CALL YOUR AG and tell them that you won’t stand for this:
http://www.consumerfraudreporting.org/stateattorneygenerallist.php
January 24th, 2012 at 8:33 am
This is a bad deal as BR’s summary shows. The sad fact is the deal should be no surprise. As with the Obama stimulus, the billions in fines will be a huge political slush fund for cronies of the President to buy constituency votes. To be fair and balanced, if the Republicans were negotiating this deal, the results would have been practically the same, only the recipients of the slush fund would be a different cast of characters.
It doesn’t take some ancient retread like David Stockman to enlighten us about crony capitalism. It gets smashed into our face on a daily basis.
January 24th, 2012 at 8:43 am
Mbwahahahahahaha!
How many times have Geithner, Donovan, AG Miller and compadres have tried to push this grade-AAA pachyderm fazoo of a (ahem!) “deal” in the media?
Puhleeze! There are so many problems with this “settlement”, it’s hard to know where to start.
1) Real estate law is State law; this attempted settlement is driven by the federal go-vermin. Pray tell how this s**t is gonna work if only ONE state refuses to join? Last time I checked, NY, DE, NV and CA were just not on board. Oooops!
2) How about SCOTUS? They’re rather sympathetic (to say the very least) toward State Rights. Say there is a lawsuit (how couldn’t there be one is beyond me) and this go to SCOTUS. I want to know what kind of arguments could possibly be used to defend this trampling of State rights. What’s the Administration going to invoked? State Secrets? National Security? The Commerce Clause? Roe v Wade? “”Yes We Can” Your Honor?” 200 years of case law are supposed to be thrown out the window because…the banks want it so? Anyone can picture the Justices being moved to tears by this argument.
3) There already are multiple lawsuits against servicers, banks and everyone else involved in mortgage finance. Just for reference, check what AG Masto is up to in Nevada; we’re talking criminal indictments of the low/mid level soldiers with obvious intent to climb up the ladder until the big fish get caught and start crying for their Mama. This settlement is supposed to take precedence over everything else? AG Masto will gleefully accept political suicide because it is the wish and desire of Harry Reid and Barack Obama to be friendly kissy-kissy with the banksters, right? Huh huh!
4) Shall we talk about the problem of “clouded titles”? *evil grin*
This administration had better get with the program; no one can sweep such systemic criminality and fraudulent behavior under the carpet and believe everything will be honky dory. It is plain insanity to believe such a thing. It would basically blow to pieces the trust anyone could still have toward the financial system of the USA. Is this administration really willing to take THAT risk?
January 24th, 2012 at 9:02 am
There has never been any intention to prosecute the bankers by either party – none. Easiest way to ensure your masters don’t go to jail is to make sure you suppress all investigations. Obama is now going to collect close to $1b in campaign finance. Do you think that he is about to jail his masters?
January 24th, 2012 at 9:27 am
Nonsense. How do you even begin to deal before doing any sort of investigation? And numbers are pulled straight out of the ass of the bankers. The only thing this “higher thinking” brings out is a low estimate. So now they admit to screwing at least 750,000 people?
Oops, no one can confirm or deny any wrongdoing…
January 24th, 2012 at 9:29 am
Would giving $1,800 to the FORMER homeowner solve the clouded title problem? They were not harmed. They transferred their property (albeit via foreclosure) with no problem. Whoever NOW owns the property has the buried title problem not the former homeowner. There is nothing in this (as described) for the people who WERE harmed.
What the ^(#&^) argument is there for giving $20k in principal reduction to people facing foreclosure but who have not been a victem of robo-signing? If someone has a $200k 25 year mortgage this reduction would reduce their payment from $1,170 to $1,052. Will $118 a month move many from “break” to “make?” Or, is it just a way to do something with the pound of flesh. This wholesale gifting for some supposed social benefit is repugnant.
This is nearly entirely irrational.
January 24th, 2012 at 9:33 am
Agree
last time they floated this crap
the “fines” went to do the writedowns they should do anyway?
but whats left is a pile for the state AGs to play with
if it even starts to fly will be all the state walkaways like NY CA
there is apparently language that tries to punish them?
January 24th, 2012 at 9:37 am
meanwhile nobody does sh t
they wait for this “deal”
January 24th, 2012 at 9:40 am
So, if I go on a bank robbing spree and steal a few hundred thousand, I could negotiate a settlement with the FBI. I would have to pay back perhaps 20% of what I stole and not be arrested? I would not even have to promise not to do it again.
Is that the deal? Barry, you’re a lawyer. Is that the deal? Because it sounds like a great deal to me.
America as an idea is dead.
January 24th, 2012 at 10:06 am
Team Obama’s main transparency is not intended to be seen, transparently ugly, transparently political, transparently indifferent to all Americans when it comes to engineering cover-ups and rewarding bankers for their rip-off crimes.
January 24th, 2012 at 10:10 am
“Many banks taking possession of increasing amounts of real estate will ultimately fail themselves. A catharsis could then take shape, and home prices would leg down yet again. After much pain both despair and disgust will settle in, and a bottom would begin to form.”
Dr. Burry
http://www.youtube.com/watch?v=JhTjV6hQcis&feature=fvwrel
January 24th, 2012 at 10:11 am
This will only reinforce the public perception we are run by political elites. Just throw the peasants a bone or two to keep them quiet.
January 24th, 2012 at 10:13 am
BR> Sorry, but this deal stinks all around
Why would you be sorry? Given the body of the post, there’s no reason for you to become an apologist for the deal…. ;-)
January 24th, 2012 at 11:00 am
Agree, this deal is just allowing the criminals in the corporations to use shareholder money to get them off the hook. They should bring this to congress and say either you give us a huge increase in the budget so we can hire investigators and prosecutors to hold the criminals responsible, or you accept and sign off on this deal.
January 24th, 2012 at 11:31 am
The deal is probably nuch worse than what Ritholz points out.
Most of the problems are related to how the banks and servicers ran their operations, including loan originations, securitizations, and MERS. However, I assume that wherever possible, the banks will cramdown the principal mods onto the securitized mortgages so that the CDS holders will be the entities that take the hit, and they are not even at the table!
To make this a fair deal to the security holders who have been victimized more than the homeowners, the vast majority of the principal writedowns should be occuring to the home equity second liens (usually on the banks’ books and not securitized) and the primary mortgages still held on the banks’ books.
We are in major danger of another fundamental legal tenet of property law going down the tubes, namely that first liens take precedence over second liens. The Obama administration crammed the auto company bailouts down the bondholders throats violating the principal that they are near the top of the foodchain in a bankruptcy, and it is likely that Obama will do the same thing to first mortgage holders just so that he can announce a deal to “help” the housing sector.
January 24th, 2012 at 11:35 am
RD — That is EXACTLY what I was concerned about — trashing a fundamental legal tenet of property law
I’ll dig up those postsbelowWhy Foreclosure Fraud Is So Dangerous to Property Rights http://www.ritholtz.com/blog/2010/10/why-foreclosure-fraud-is-so-dangerous-to-property-rights/
Foreclosure Fraud Reveals Structural & Legal Crisis http://www.ritholtz.com/blog/2010/10/foreclosure-fraud-reveals-structural-legal-crisis/
January 24th, 2012 at 12:12 pm
While I agree that trashing a fundamental legal tenet of property law is distressing, the trashing of various other fundamental laws and rights which could result in cattle prods in my anus while being waterboarded in some Romanian CIA gulag is frankly a larger concern.
I don’t really want to pick up a pitchfork and length of rope and head to Wall Street and DC, but it seems to me that our Ruling Elite is doing absolutely everything they can to invite revolution. Perhaps they since the end is near anyway and are partying as hard as they can before, in the inimitable words of Mister James Morrisson, this whole shithouse goes up in flames.
January 24th, 2012 at 12:14 pm
The question has been asked, “Pray tell how this s**t is gonna work if only ONE state refuses to join?”
Simple: The agreement includes a section that says that if any state cuts a better deal, then ALL the states that signed onto a better deal get it too.
What this means in principle is that banks will NEVER negotiate in good faith with any of the non signatory AGs, because any settlement is multiplied by 50.
So if an AG does not sign onto this deal, they get nothing unless they spend years (decades?) litigating.
When juxtaposed with the financial straits of state finances, it means that even if someone does not sign on this year, they or their successor, will sign on NEXT year.
January 24th, 2012 at 2:07 pm
I think we should extend the role of the Special Forces to all illegal foreclosures…when is somebody going to go to jail instead of just having to give blow jobs to politicians. Oh and why we are at it we could just fire the Housing Secretary for a start. he is just another example of the most inept administration since (and probably including) the Carter Administration….
January 24th, 2012 at 3:37 pm
Can’t say that I agree that 20k principal reductions do nothing to help underwater home owners – 20k is 20k – whether it will matter really depends on where on the bell curve 20k is, in terms of HOW underwater these homes are.
For example, my home is underwater. I can easily afford the payments. However, if I got a job in another part of the country, I would need to sell it. In order to sell it, I would have to make up the difference between the sale price and the balance on my mortgage. 20k would go a long way toward closing that gap.
As an average, middle class type guy, 20k is a lot of money to me. 20k is a new car. 20k is half a downpayment on another average home. 20k takes a long time for me to save.
Should I get a free handout of 20k from the government? Probably not, but it seems like as a responsible homeowner I am pretty much the only person in the entire situation who hasn’t gotten a free handout at this point. The bankers got bailed out – the deadbeats got foreclosure assistance. It seems like I’m the only one who has lost out on this.
Should I be punished for buying at the wrong time? Probably. However, the buy-vs-rent ratio of my home at the time I purchased it was 15. That is not supposed to be irresponsible. Its now 11. You’d think the natural forces of the market would close that sort of blackhole in a snap. They aren’t.
What I think we really need is something that makes potential responsible, creditworthy buyers feel confident that they can take their cash and buy a home and they don’t have to be afraid that they are going to loose their money. Thus far, the market has sent the opposite message. Responsible homeowners loose. Deadbeats win. Crooks and banksters win. Why would anyone invest their hard earned savings into that?
I’m not sure this program will do the right things to reverse that message and get creditworthy buyers to stop renting.
But 20k is 20k.
January 24th, 2012 at 3:45 pm
Fannie, Freddie Writedowns Too Costly: Regulator
The regulator for Fannie Mae and Freddie Mac told lawmakers that forcing the government-controlled mortgage firms to write down the principal on underwater home loans would require more than $100 billion in fresh taxpayer funds.
In a letter sent on Friday to the Republican and Democratic leaders of a House of Representatives government oversight panel, the Federal Housing Finance Agency explained why it has long opposed principal reductions for borrowers who owe more than their homes are worth. In that situation, the mortgage is deemed “underwater.”
About 22 percent of U.S. home mortgages have negative equity totaling about $750 billion, meaning that about one in five U.S. home mortgages is “underwater” with the amount owed exceeding the home’s value, according to CoreLogic, a financial information and analytics company based in Santa Ana, California.
The Federal Housing Finance Agency said it had determined that such reductions would be more costly for Fannie Mae and Freddie Mac than forbearance, which was the less expensive option by comparison. The two mortgage firms have been using forbearance to help borrowers struggling to make payments.
Forbearance lets the borrow reduce or suspend payments on a loan for a specific amount of time.
January 24th, 2012 at 3:47 pm
BR
I understand that you have written on the fraud endemic in the housing finance industry for several years now.
However, it needs to be clearly pointed out that the Obama Administration originally had more of a passive “head in the sand, pretend and extend” position on the issue of fraud and protection of banks over legal rights. However, this settlement is moving them into a position of actively negotiating to enshrine emascualting property rights to enrich TBTF financial institutions as a guiding principle for the republic. It is possible that they might even be able to intimidate the security holders into not suing to restore their property rights by intimating that they will push even worse things onto them if they protest.
Welcome to the New Third World.
January 24th, 2012 at 4:18 pm
If it passes look for “blood in the streets” due to Celente’s maxim (paraphrased: when people lose everything and have nothing to lose, they lose it!).
There is so much simmering anger on the street these days with the unemployed, recent college grads smothered in debt and no jobs to be had, all the foreclosed and underwater homeowners, a middle class decimated by the “outsourcing” of way too many good-paying jobs, racists that want Obama out, everyone who goes to the food store or gas station and has no choice but to pay higher amounts for the same shit, disgruntled vets returning from pointless wars, all the people who realize that the coming election is a fucking joke and that there is no choice and that no matter who is elected the effect is only going to be a continuation of the present mess (to name just a few groups), that it just needs a catalyst to set off a Watts-like riot (only it would involve the whole country).
The 1%ers better watch their asses if it gets ugly. Everyone knows where they live.
January 24th, 2012 at 10:08 pm
Principal reduction is a red herring.
January 25th, 2012 at 12:37 am
Not so fast on the settlement? This surprised me from the SOTU:
“And tonight, I am asking my Attorney General to create a special unit of federal prosecutors and leading state attorneys general to expand our investigations into the abusive lending and packaging of risky mortgages that led to the housing crisis. This new unit will hold accountable those who broke the law, speed assistance to homeowners, and help turn the page on an era of recklessness that hurt so many Americans.”
And Schneiderman’s in charge (http://www.fox23news.com/news/local/story/NY-Attorney-General-to-chair-Mortgage-Crisis-Unit/7Vf159658ESiRT0UtnI8dw.cspx)
January 26th, 2012 at 10:38 am
decius, I am not sure you get the $20k reduction because you are not facing foreclosure, you are paying your underwater mortgage on time. I may be wrong on this but Barry wrote
- Up to another $17 billion used to reduce principal for homeowners facing foreclosure
- Principal reduction of $20,000;
Do these go hand in hand? If so you and I are sol unless we stop paying for a few months.