Foreclosuregate rattles on, and it looks like the banks are going to lose their pound of flesh, in this case, $25-$26 billion over three years, in order to get off the hook for roughly 100 times that in real damage to the economy.
The final details of the pact were still being negotiated Wednesday night, including how many states would participate and when the formal announcement would be made in Washington. The two biggest holdouts, California and New York, now plan to sign on, according to the officials with knowledge of the matter who did not want to be identified because the negotiations were not completed.
The deal grew out of an investigation into mortgage servicing by all 50 state attorneys general that was introduced in the fall of 2010 amid an uproar over revelations that banks evicted people with false or incomplete documentation. In the 14 months since then, the scope of the accord has broadened from an examination of foreclosure abuses to a broad effort to lift the housing market out of its biggest slump since the Great Depression. Four million Americans have been foreclosed upon since the beginning of 2007, and the huge overhang of abandoned homes has swamped many regions, like California, Florida and Arizona.
In New York State, more than 46,000 borrowers will receive some form of benefit, with an estimated 21,000 expected to see what they owe reduced through a principal reduction, according to estimates by the Department of Housing and Urban Development.
The five mortgage servicers in the settlement — Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial — have largely set aside reserves for the expected cost of the accord and investors are likely to cheer its announcement because it removes one more legal worry for the industry, analysts said.
“I wouldn’t say it’s a panacea for the housing industry but it is good for the banks to get this behind them,” said Jason Goldberg, an analyst with Barclays.
Of course it is. And yes, about a million underwater homeowners will get some relief. But ten million will not, and the housing depression will remain for another 3-5 more years at the minimum. There’s still hope that the robosigning outfits like MERS are going to still face legal action, but for the most part, the banks are getting away with murder, the housing depression is going nowhere, and the bulk of homeowners won’t see a dime from this settlement.
Is it better for the million or so homeowners who will see something get that money? Absolutely. But the cost is brutally high for that aid and the people responsible for this mess still won’t face prison.
And yet…given the circumstances, it was the best we could hope for. Yves Smith gives us a dozen reasons why the deal should depress you. The biggest one?
We’ll now have to listen to banks and their sycophant defenders declaring victory despite being wrong on the law and the facts. They will proceed to marginalize and write off criticisms of the servicing practices that hurt homeowners and investors and are devastating communities. But the problems will fester and the housing market will continue to suffer. Investors in mortgage-backed securities, who know that services have been screwing them for years, will be hung out to dry and will likely never return to a private MBS market, since the problems won’t ever be fixed. This settlement has not only revealed the residential mortgage market to be too big to fail, but puts it on long term, perhaps permanent, government life support.
There’s a reason I think the housing depression will last into 2017 or longer. Foreclosures will continue to pile up, and home prices will continue to drop. And all the while, the banksters are making out like bandits. As Matt Taibbi says, Wall Street should stop whining.
The financial services industry went from having a 19 percent share of America’s corporate profits decades ago to having a 41 percent share in recent years. That doesn’t mean bankers ever represented anywhere near 41 percent of America’s labor value. It just means they’ve managed to make themselves horrifically overpaid relative to their counterparts in the rest of the economy.
A banker’s job is to be a prudent and dependable steward of other peoples’ money – being worthy of our trust in that area is the entire justification for their traditionally high compensation.
Yet these people have failed so spectacularly at that job in the last fifteen years that they’re lucky that God himself didn’t come down to earth at bonus time this year, angrily boot their asses out of those new condos, and command those Zagat-reading girlfriends of theirs to start getting acquainted with the McDonalds value meal lineup. They should be glad they’re still getting anything at all, not whining to New York magazine.
And our economy gets to foot the bill. Nice. Is this Obama’s fault? No. Congress, Washington, lobbyists, Fannie, Freddie, the banks, MERS, all this was put into motion well before Barack Obama ever set foot in the Oval Office. I’m not expecting this to be fixed in 3 years, hell it’ll take 3 decades before home prices are back to 2006 levels…if then. And it’s not like bankrupting the banks and putting hundreds of thousands of bank employees who were not responsible for this disaster out of work is a viable solution either.
Is this the best we can hope for right now? Unless the makeup of the House and Senate changes substantially in the “let’s clone Elizabeth Warren a couple hundred times” direction, yes. Political reality is political reality, just like the economic reality of the housing depression is reality. Some homeowners are getting help, and the banks are paying for it. McCain would have done nothing. Certainly his DoJ would have done everything possible to insulate the banks from any settlement. (PS, the one state not joining? Oklahoma. Their AG says the banks should not be held liable at all. Period.)
But this is a win for the forces of greed and evil, because they set all this up as legal well before it happened. It’s depressing and I hate it. But we know how to fix it. We can start in November.