$25 Billion Bank Job

[BDKJMU]

Obama Administration officials and various state Attorneys General looked gleeful yesterday announcing a $25 billion settlement with five big tobacco—er, banks—and why not? The bankers coughed up shareholder money to settle a pseudo-foreclosure scandal, while the White House moved closer to its political goal of guaranteeing every home mortgage.

Rarely have so many politicians cashed in so blatantly on so little wrong-doing. In 2010, a group of AGs led by Iowa's Tom Miller spotted political gold in reports that some bank employees had approved legal documents without proper review. They quickly spun this into the fairy tale that evil banks were kicking borrowers out of their homes for no good reason. Former Ohio Attorney General Richard Cordray, who parlayed his scare campaign into a job running the new Consumer Financial Protection Bureau, said banks had "a business model based on fraud."

The banks did have sloppy paperwork practices, but they were also dealing with a historic wave of foreclosures created in large part by government-backed Fannie Mae and Freddie Mac. To date there's no evidence that borrowers current on their mortgage payments were improperly ejected from their homes. Federal regulators have already stepped in, conducted lengthy audits, forced banks to change their internal procedures and yesterday levied $394 million in fines against four of them.

But the politicians know an election-year windfall when they see it. Ally Financial, Bank of America, Citigroup, J.P. Morgan Chase and Wells Fargo promised to devote a mere $1.5 billion of the $25 billion to alleged victims of wrongful foreclosures between January 1, 2008 and December 31, 2011.

The rest of the loot will serve the political agenda of paying off favored home owners—er, voters—with principal reductions, refinancing programs and foreclosure forbearance. The states and feds will also get nice cash payments. Think of this as one more giant political stimulus package—Congressional approval not required.

At least $10 billion will go toward principal reduction for delinquent borrowers or those on the brink of foreclosure with loans issued by private lenders. In other words, Washington is taking money from bank shareholders and investors in mortgage-backed securities, who will see the value of their holdings fall, and giving it to people who aren't paying their bills. Welcome to the "fairness" era.

Iowa's Mr. Miller argued yesterday that principal reduction will salvage loans on the path to delinquency and thus save investors money—the proverbial free lunch. But mandated principal reduction may not save the borrowers if housing prices don't rise. Meanwhile, 42% of all borrowers with loans in foreclosure haven't made a mortgage payment in two years, according to Lender Processing Services. They are being rewarded for not paying their bills.

The settlement also has at least $3 billion to refinance homeowners who pay their bills but owe more than their home is worth—in other words, people who bought more home than they could afford. Another $7 billion will go to "other forms of relief," including loan forbearance for the unemployed, "anti-blight programs," "transitional assistance" and other political transfer payments.

Incredibly, the settlement doesn't prevent states or the feds from pursuing more criminal cases, civil-rights or securitization lawsuits, or more claims against the Mortgage Electronic Registration Systems. So even after this round of political extortion, the banks will be asked to pay again and again. They have little ability to say no because Mr. Cordray and regulators now have life-or-death control over nearly every bank product. Ma and Pa Barker should have gone to law school and run for office.

All of this will entrench the government ever-deeper into the housing market, and this may be the real political goal. In January the Administration announced it would take billions of dollars in leftover TARP funds to entice Fan and Fred's regulator to do principal writedowns. Last week, the White House asked Congress to let the taxpayer-backed Federal Housing Administration—which is already insolvent—underwrite loan refinancing for underwater borrowers with private mortgages.

Mr. Miller added yesterday that he hopes "widespread" principal reductions become "commonplace," and President Obama said "we're going to keep on at it until everyone shares in America's comeback." Translation: The politicized lending that led to the housing crisis has turned into politicized settlements, which will in turn lead to more politicized lending.

However this helps the politicians, it won't revive the housing market. CoreLogic's latest data show some 10.7 million residential properties have underwater mortgages, representing 22.1% of all housing loans, or $699 billion. Even $25 billion in income redistribution can't clear the market any faster of excess homes, or produce more buyers who can afford to buy them. Presumably that can wait for the second Obama term.
http://online.wsj.com/article/SB1000142 ... lenews_wsj" onclick="window.open(this.href);return false;

[BDKJMU]

What a crock. Totally unfair to those of us who didn't buy more home than we could afford and have been making our payments on time.

[Ivytalk]

Hallmark of the Age of Obama: Shanghaiing the productive classes to bail out the deadbeats, thereby buying votes for Barry.

[kalm]

Oh the righteous indignation! oh the poor banks!

2. That $26 billion is actually $5 billion of bank money and the rest is your money. The mortgage principal writedowns are guaranteed to come almost entirely from securitized loans, which means from investors, which in turn means taxpayers via Fannie and Freddie, pension funds, insurers, and 401 (k)s. Refis of performing loans also reduce income to those very same investors.

3. That $5 billion divided among the big banks wouldn't even represent a significant quarterly hit. Freddie and Fannie putbacks to the major banks have been running at that level each quarter.

4. That $20 billion actually makes bank second liens sounder, so this deal is a stealth bailout that strengthens bank balance sheets at the expense of the broader public.

5. The enforcement is a joke. The first layer of supervision is the banks reporting on themselves. The framework is similar to that of the OCC consent decrees implemented last year, which Adam Levitin and yours truly, among others, decried as regulatory theater.

6. The past history of servicer consent decrees shows the servicers all fail to comply. Why? Servicer records and systems are terrible in the best of times, and their systems and fee structures aren't set up to handle much in the way of delinquencies. As Tom Adams has pointed out in earlier posts, servicer behavior is predictable when their portfolios are hit with a high level of delinquencies and defaults: they cheat in all sorts of ways to reduce their losses.

7. The cave-in Nevada and Arizona on the Countrywide settlement suit is a special gift for Bank of America, who is by far the worst offender in the chain of title disaster (since, according to sworn testimony of its own employee in Kemp v. Countrywide, Countrywide failed to comply with trust delivery requirements). This move proves that failing to comply with a consent degree has no consequences but will merely be rolled into a new consent degree which will also fail to be enforced. These cases also alleged HAMP violations as consumer fraud violations and could have gotten costly and emboldened other states to file similar suits not just against Countrywide but other servicers, so it was useful to the other banks as well.

12. 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.

As we've said before, this settlement is yet another raw demonstration of who wields power in America, and it isn't you and me. It's bad enough to see these negotiations come to their predictable, sorry outcome. It adds insult to injury to see some try to depict it as a win for long suffering, still abused homeowners.

http://www.huffingtonpost.com/yves-smit ... 64806.html" onclick="window.open(this.href);return false;

[kalm]

Hallmark of the Age of Obama: Shanghaiing the productive classes to bail out the deadbeats, thereby buying votes for Barry.

He'll be buying votes with campaign contributions from Wall Street for this light slap on the wrist. Btw your highness, what exactly do the deadbeat banks produce?

[blueballs]

Another money heist that feels good, makes the administration look good ni the eyes of their adoring media, and produces pretty much nothing.

What wasn't widely reported was the 50 basis point hike in GSA fees on conventional mortgages that have been phased in over the past three weeks and the fact that this settlement doesn't absolve MERS nor does it preclude civil suits or actions by the states.

Basically it is a crock...

[kalm]

Here's another good piece on the issue. No big surprise but apparently the foreclosure crisis was a "policy choice" and once the Obama administration chose the banks every subsequent move they have made is to preserve their position. One of the problems with this settlement, as the author points out, is that it's providing a remedy before a full diagnosis.

For all you "free marketeers" out there, deregulation and these type of solutions is exactly what the financial services industry has bought, the big banks are bigger than before, and competition suffers. This ain't how capitalism is supposed to work.

The settlement announced yesterday, whether you believe the $25 billion number (of which only $5 billion is actual cash), is one-third the size of HAMP. As Obama noted nearly two years ago, that’s just not very much gravel.

A more realistic solution to the problem was actually debated within the administration during the transition, in debates revealed by economist Laura Tyson at the Financial Times’ View from the Top Conference in 2011. She noted that top officials had to decide whether to engage in mass write-downs of debt similar to FDR’s programs in the 1930s by using tools such as judicial modification, or whether to allow millions of foreclosures to go forward. They chose the latter. The current foreclosure epidemic, in other words, is partially a policy choice.

Everything done subsequent to that decision has been designed to mask this essential policy choice. This settlement is simply the latest example. While the headline number on the settlement is $26 billion, the actual cost to the banks and benefit to homeowners could be far lower, depending on how this complicated system of “credits” will be allocated. The banks will in all likelihood be able to charge off activities they had already planned, such as not pursuing deficiency judgments, refinancing and loan modifications. Some of the money may wind up being be paid not by banks, but by investors, such as pension funds.

http://www.salon.com/2012/02/10/banks_g ... ment_deal/" onclick="window.open(this.href);return false;

[YoUDeeMan]

Oh the righteous indignation! oh the poor banks!

Nobody gives a shit about the banks.

This money will come out of the taxpayers pockets. Once again, Obama takes from those who have done the right thing to help those who were greedy and incompetent - that includes the rich and the poor.

So the average Joe gets screwed by Obama...again.

[AZGrizFan]

So, the mistake I made was actually PAYING my mortgage.

[grizzaholic]

So, the mistake I made was actually PAYING my mortgage.

Sweet Jesus, you finally got it.

[AZGrizFan]

So, the mistake I made was actually PAYING my mortgage.

Sweet Jesus, you finally got it.

I need to get delinquent ASAP so I can get on that gravy train Obama is drivin'.

[grizzaholic]

Sweet Jesus, you finally got it.

I need to get delinquent ASAP so I can get on that gravy train Obama is drivin'.

I think I found a problem with it though. If you, and folks like you, quit paying mortgages and taxes, how will the schools, infrastructure, and other necessities be paid for?

[kalm]

I need to get delinquent ASAP so I can get on that gravy train Obama is drivin'.

I think I found a problem with it though. If you, and folks like you, quit paying mortgages and taxes, how will the schools, infrastructure, and other necessities be paid for?

Because the banks will have more money and like magic pixie dust it will trickle down over everything, duh.

[grizzaholic]

I think I found a problem with it though. If you, and folks like you, quit paying mortgages and taxes, how will the schools, infrastructure, and other necessities be paid for?

Because the banks will have more money and like magic pixie dust it will trickle down over everything, duh.

Stupid me. Sometimes my brains kinda don't work properly.

[Ivytalk]

Hallmark of the Age of Obama: Shanghaiing the productive classes to bail out the deadbeats, thereby buying votes for Barry.

He'll be buying votes with campaign contributions from Wall Street for this light slap on the wrist. Btw your highness, what exactly do the deadbeat banks produce?

There you go again, klammy, bringing Wall Street into it!

[grizzaholic]

He'll be buying votes with campaign contributions from Wall Street for this light slap on the wrist. Btw your highness, what exactly do the deadbeat banks produce?

There you go again, klammy, bringing Wall Street into it!

Why not? It was a good movie.

[kalm]

He'll be buying votes with campaign contributions from Wall Street for this light slap on the wrist. Btw your highness, what exactly do the deadbeat banks produce?

There you go again, klammy, bringing Wall Street into it!

I'm sorry. Did you miss something?

[blueballs]

How ironic...

When I opened this thread today this was the banner ad at the bottom of the page:

Strategic Default - FL
Under water? Should you walk away? Read our blog - experienced lawyers
http://www.stayinmyhome.com" onclick="window.open(this.href);return false;

[travelinman67]

So, the mistake I made was actually PAYING my mortgage.

Does kind of make me whince...thinking back to all the years driving older cars, brown-bagging and eating cheap so I could feed my family, keep healthcare and make the mortgage payment every month. And in the end, I paid in full, then lost 42% of property value, while millions refinanced, spent the money on vacations and new cars, then walked away leaving the taxpayers/responsible mortgage holders to cover the loss.

Remind me, why is the Obama admin signing off on this?