Wall St. Journal’s front page announced that a $25 billion settlement with banks regarding alleged foreclosure abuses would provide financial relief for approximately one million at-risk borrower, raising new hope for an economy still struggling from the mortgage bust.
One positive aspect of the 16-month-old agreement is that banks will pursue foreclosures more aggressively, clearing out the backlog in distressed homes. This will be a difficult time for many families, but it is essential for the long-term stabilization and recovery of housing’s mojo.
The banks are not completely out of the loop with this settlement, which is a plus. While the banks will not have to watch out for the attorneys general of the different states, they could be sued in relation to securitization loans or fair lending practices.
The agreement has many negative consequences. The $25-26billion agreement means that the banks will only have to pay $5 billion cash. The rest will go to principal reductions or refinancings. this is just a slap on for the five major banks that signed the agreement. The other issues are:
1. Each homeowner who has lost their home to fraud will receive $2000 or less. This seems like a modest penalty for banks who have violated fraud or forgery laws.
2. According to what I’ve been able find, compliance and enforcement aspects of the agreement are weak.
3. There are not many serious investigations into mortgage fraud. The relationship between Wall St., Washington D.C. seems to be unchanged. This almost guarantees that there will be another type of fraudulent activity in future.
4. What number of executives have you seen performing the perp walk. I haven’t seen any and don’t know of any major figures who went to jail. Although the agreement doesn’t specifically prohibit the government from pursuing bank executives in the future it does show that they want to move on and put all their crimes behind them.
The agreement was only applicable to five of the most serious offenders. The next nine largest servicers could agree to the same conditions. This is still a small amount considering that the U.S. has $750 billion of negative equity and six million homes are in various levels of distress.
This agreement brings us closer to ending the housing crisis. However, there are still many challenges ahead. The majority of the pain will be inflicted on taxpayers and investors, rather than those who were responsible for the original crimes.
Adam Mcbrian, a cash flow buyer who buys mortgage notes from all 50 states, is known as Cash Flow Note Buyer. Since 2002, he has been a cash flow note buyer.