Thursday, July 26, 2012


A Victory for the Public on Foreclosures?
by Matt Tabbi, Rolling Stone

So there was big news yesterday on the foreclosure settlement front. We still have to wait and see what the final deal looks like, but there are reports out that the long-awaited settlement is a far, far better deal for the public than expected. If these reports are true, it looks like New York Attorney General Eric Schneiderman and California AG Kamala Harris have scored an enormous victory in narrowing the scope of the settlement to the point where it really only covers robosigning abuses.

According to reports (like this one in the Huffington Post), the deal will not include:
  1. Criminal liability.
  2. Tax liability
  3. Fair lending, fair housing, or any other civil rights claim.
  4. Federal Housing Finance Agency or the GSEs [Fannie Mae and Freddie Mac]
  5. CFPB claims for the period after they came into existence in July 2011
  6. SEC claims
  7. National Credit Union Association Claims
  8. FDIC claims
  9. Federal Reserve Board claims
  10. MERS claims
If that is true, and all of those things are out of the deal, and the banks are still exposed to liability not only for all of those things, but also for the broad range of offenses related to securitization, then $25 billion, dare I say it, might not even be a completely sucky number. It's far less than the real liability, but it's a much bigger sum than I ever thought would be negotiated just for robosigning.

I'm interested to see what the market reaction will be if this deal goes through. On the one hand the banks will all obtain some certaintly and relief from robosigning claims. But on the other hand, all the banks are still on the hook in other areas, nost notably putbacks of bad loans.

Score one for Schneiderman/Harris. Coupled with the news that the subpoenas have already started dropping on the securitization front, I'm almost optimistic.
p.s. let me clarify something, for readers who might mistake my meaning here. Robosigning is not a small offense. It's not a "clerical" issue. It's a mass-perjury issue, a tax evasion issue, a contractual fraud issue, and it's a criminal conspiracy issue (the banks' highest executives were engaged in planning it) and it resulted in millions of errors that resulted in untold numbers of premature foreclosures.

Robosigning had a profound and immediate impact on large numbers of actual human beings, and I don't want people to think I'm dismissing it as unimportant. I probably also shouldn't celebrate news like this until I see how the actual deal looks, what wording is used to narrow the deal's purview, how homeowners and other victims will be compensated, what will be done to prevent it in the future, and so on.

But my point was that, while a gross crime and one of the more obvious (and easily provable) parts of the criminal scheme common during the mortgage bubble years, robosigning is really an ancillary part of an even more enormous fraud that went on, and is still going on, in securitization/origination. Many homeowners were victimized by robosigning, but your more common victim of bank fraud during this time was an investor in MBS -- maybe even another WallStreet entity like a hedge fund or a bond insurer, maybe a foreign trade union, maybe a state worker whose pension fund lost 40% of its value because it was sold bad bonds by a too-big-to-fail bank. And the hook that snared those victims was securitization.

When I first heard about the foreclosure settlement, I thought it might contain a broad waiver for everything, including the tax evasion issues, the fair lending issues, securitization, and all the other things on that list above. If they did that, that would be TARPx10. My only point about this deal is that it appears to have been effectively negotiated down from a bloocurdling outrage to whatever it is now, which is probably something far less than that: it may still be a serious underpay, but it's not the unreal, criminal giveaway it was originally meant to be.

And it still leaves plenty of room for criminal investigation and reform. The people who organized and supervised the robosigning could and should still be targets of criminal prosecution, deal or no deal: this won't change that.

All I'm saying is, good for Schneiderman/Harris for holding out and preventing this settlement from being another AIG -- a secret backroom bailout in which everybody at the table got the government to solve their balance sheet problems in 24-48 hours of frenzied, disorganized discussion. This is still a bailout, but at the very least, someone represented the public this time around.

We still have to see what it looks like in the end, but I'm encouraged.
I talked more on this with the excellent Bill Press on Countdown last night:
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  • Matthew Weidner |1 hour, 59 minutes ago
    oh god no. they've finally gotten to he's a government troll. that's the only explanation that makes sense for this cheer-leading piece. remember, all the announcements speak of maybe a hundred attorneys and investigators...Enron had thousands. remember, Holder already said most of the conduct was not criminal in his speech. remember schneiderman has no real authority. remember they've already been investigating for years and no arrests. until we see real indictments this is all just theater.
  • Kurt Duffy |7 hours, 13 minutes ago

    While interest rates have never been more attractive, the number of people taking advantage of the historically low rates and refinancing their mortgages has dropped substantially, most of them dont even aware of the rates, i recommend 123 Refinance for refinance
  • Lee AuCoin |10 hours, 20 minutes ago
    So there will be a deal limiting liability on the crimes (perjury, fraud, conspiracy) while the larger, more complicated & difficult to prove crimes will begin and continue.... at least until the election. Why am I suspicious?
  • Don Fahnestock |19 hours, 35 minutes ago
    Two steps back, instead of four, for the possibility to maybe perhaps, after hell freezes over, take one step forward. The financial industry's strategy to wear folks down to the point where the most ardent critics will call just about anything, "A Victory for the Public....."
  • Richard Davet |Yesterday, 8:18 AM EDT
    the deal will not include:

    Criminal liability.
    Tax liability
    Fair lending, fair housing, or any other civil rights claim.
    Federal Housing Finance Agency or the GSEs [Fannie Mae and Freddie Mac]

    Since 1996 bac has sold 94% of their mortgages to fnma. If 94% are left out of settlement...................what is being settled?
  • Richard Davet |Yesterday, 8:14 AM EDT
    the deal will not include:

    Criminal liability.
    Tax liability
    Fair lending, fair housing, or any other civil rights claim.
    Federal Housing Finance Agency or the GSEs [Fannie Mae and Freddie Mac]

    As far back as 1996, bac sold 94% of all their mortgages to fnma. If 94% are left out of settlement...................................what is being settled???????????

  • [Deleted] |Yesterday, 7:14 AM EDT
    If it's true that this issue is focused ONLY on robo-signing - then I agree, this number doesn't suck. I only hope that the States use the funds to reimburse those who were injured by these abuses and do not earmark the funds for completely unrelated wishlists. The funds truly belong to those injured - and leaving the Ad Valorem Tax issue open for the States to recover funds should completely exclude the States from using funds from this settlement for State services.
  • Thomas Joseph |Yesterday, 6:34 AM EDT
    A judge once told me " the court house is like the Ritz Carlton, the doors are open to everyone as long as you have $600 for a room". It probably is a good settlement but the cost of litigating even the simplest claim is outrageous. Justice is out of reach for the 99%.
  • Dana Outlaw |Yesterday, 12:57 AM EDT

    Refinancing to a shorter mortgage term may allow you to build your home equity and pay off your mortgage faster. You can easily find your rates from websites like 123 Refinance in secs
  • [Deleted] |January 28, 6:14 PM ET
    The criteria for a good settlement is explained by Abigail Field on her website today.
  • Mitch Seaman |January 28, 6:13 PM ET
    Formatting's weird, can't read the first word of each line. If you could fix that would be rad.
  • [Deleted] |January 28, 6:12 PM ET
    This is not a good fraud settlement unless it meets the simple criteria for a good settlement as explained by Abigail Field here
  • Carter Russell |January 28, 6:06 PM ET
    Robosigning has always seemed to me a case of lazy or sloppy bookkeeping, not a nefarious ripoff scheme. That said, Al Capone went down on tax evasion not his syndicate criminal activity, so it's good a dent has been made with the robosigning issue (where there was an undeniable smoking gun, if I can call the lack of something a smoking gun). And it's great that all the other abuses can still be investigated.

    Good job with the interview. I agree with your assessment of Press as excellent. When it comes to Obama, however, I hope you heed the words (more or less) of George W. Bush. "Fool me once, shame on you, fool me twice, shame on me. Won't get fooled again!" (I'm sure you don't intend the piece as an election piece, but coming in an election year, it will inevitably be interpreted that way.)
  • Abigail Caplovitz Field |January 28, 5:53 PM ET
    So much more than the liability waiver is important. Here's an idea of what a strong deal would look like: 1) Enforcement. Now, there’s been rumors about an independent court appointed monitor to do enforcement. That sounds fine as far as it goes, but here’s what real enforceability means:

    a) The monitor must have the ability to access and review servicer databases and other records at will. Servicers can’t be allowed to manage the info flow to the monitor.

    b) If the monitor finds problems, s/he must be able to impose immediate penalties of a variety of strengths without going through a process that enables the servicers to appeal and object and delay. Think of the monitor as a probation officer.

    c) The monitor should have a process for homeowners to file complaints, and a certain threshold of substantiated complaints should trigger enforcement action.

    d) The monitor must be truly independent with the skills, experience, staffing and other resources to do the job right.

    e) The monitor’s job and powers must continue into perpetuity unless the agreement is superceded by statute or regulation. This is important because homeowners are not servicers’ customers. The economic interests of the servicer do not align with homeowners, and after a deal’s expiration there’s zero reason to expect compliance to continue.

    2) Servicing Standards. When the “deal” was first leaked early last year I took it apart for DailyFinance here. What was abundantly clear from the proposal was that it mostly required servicers to obey the law, including the duties of good faith and fair dealing. That is, the document mostly exposed how much of the problem is a failure to enforce existing law. The biggest addition was the idea that servicers can’t foreclose on someone they’re considering for a modification. Of course, that is also a blatantly deceptive (and therefore illegal) practice, and that’s why Massachusetts AG Martha Coakley included it in her suit against five bailed-out banks (at paragraph 142).

    Beyond the very vanilla stuff in that original, “obey the law” term sheet, the settlement must force the banks to let the independent monitor’s team audit their account records. Evidence keeps surfacing that their records of who owes how much, to whom, are simply wrong far too much of the time. Consider these recent stories by Reuters and iWatch News or this one I wrote about a year ago. Or consider that servicers have been playing games with amounts borrowers owe in bankruptcy court so frequently that the court did a two year, seven step process to change the rules and force the banks to deal in good faith. (I write about the rule changes and background here, starting under “Measuring Up: The U.S. Trustees Program”.)

    Bottom line: mortgage servicers will never be able to do a good job unless their databases are totally overhauled, and they’ll never do that overhaul without an independent audit. And no, I don’t mean “independent” in the OCC sense; I mean actually independent, by the settlement monitor.

    What the current servicing standards are on the table isn’t clear, since we’ve not seen anything in nearly a year. It’s impossible to evaluate the terms on the table without seeing them, but unless the terms are better than that initial leak, they’re nowhere near good enough.

    3) Principal Reductions

    One of the oddest features of the settlement as discussed to date is the idea that the banks will be given total discretion to allocate most of the billions of dollars involved among borrowers. Several bad consequences flow from that.

    First, no state can know how much it’s getting (except the rightly-rejected CA bribe). How can an AG, in good conscience, take a deal without knowing what it’s worth to his or her state? Second, structuring the deal this way enables the banks to focus on managing their balance sheets rather than providing relief to homeowners. That is, decisions about who to help and how much will have nothing to do with who needs help or how much help they need. Third, as part of that balance sheet management, the banks will be able to shift losses from themselves to pension funds. How is that just?

    I call this feature of the settlement odd, because it’s completely unnecessary. Consider what happened after BP turned the Gulf of Mexico into a toxic waste dump: we made them stick $20 billion in a kitty, put Ken Feinberg in charge, and he cut checks to victims. Why isn’t that the model in this case?

    Instead of letting the banks manipulate the numbers to their advantage, we should require them to cough up the full amount in actual cash, and let a fully staffed and independent special master pay down the mortgages. The special master for each state should be appointed by that state’s AG, and the banks should not have a right to object to the person chosen. More; the rule should be that the payments are applied, 100%, to principal and interest. Any outstanding fees that the servicer has applied to the account only get repaid if the servicer submits a fully documented bill to the special master.

    Having a state-AG named person run a fund aimed at helping that state’s victims insures the decisions about who to help how much can be made by someone who really has homeowners’ interests at heart. Second, by forcing the banks to cough up cash, the approach is punitive, which it’s supposed to be.

    4) Regardless of how the DE’s MERS lawsuit is resolved and liability for its past actions addressed, the settlement should include an agreement to stop using MERS on all loans made after the date of the settlement. We need to limit the damage.

    5) The settlement has to deal with the fact that most mortgages’ documents are FUBAR. ‘Robosigning’ isn’t simply about signing documents in a funny way; it’s about creating documents the banks don’t have because they didn’t do their job right at the outset. Why are they creating the documents? So they can win foreclosure cases. That’s obstruction of justice. When you don’t have the evidence you need, you’re not supposed to just make sh-t up. But the servicers are, systematically. And it’s not like they’re doing things they have the right to do, just late. For a variety of reasons these documents are just fraudulent. They’re creating documents in the name of companies that have long since gone out of business, for example.

    Bottom line: You can’t solve “robosigning” simply by slowing the process down long enough for people to review newly-minted documents before submitting them. Similarly, if the database the reviewer is checking the numbers against is wrong, the review doesn’t help either. How to resolve the FUBAR documents situation? I don’t know. All I know is that the topic has to be dealt with head on.

    6) The liability waiver should be narrow. Perhaps that’s a done deal; certainly there’s considerable reporting to that effect. All I can say is 1) the text isn’t released, and 2) if the origination fraud waiver was so narrow, why were the banks willing to give CA a $15 billion bribe to sign on? What is it about California’s released liability that inspired such a big bribe?

    But let’s say, ok, the waiver’s narrow. If 1 through 5 above aren’t also part of the deal, then it’s a joke; the help for homeowners is too little in terms of dollars and too ephemeral in terms of servicing improvements. So the banks aren’t getting much liability released, but homeowners also aren’t getting much help.
  • Jessica LaRock |January 28, 5:51 PM ET
    Matt, the robosigning is not a "small" issue. It has contributed to clouding the titles of tens of millions of properties all over the country, potentially 60 million or more if you include all the MERS mortgages. The result is that homeowners will not be able to sell their homes, nor get a satisfaction/release on their mortgage if they should pay it off. Not without filing a quiet title suit, anyway. $25B is nowhere near enough to clear up this problem.
  • Garrett Rue |January 28, 4:26 PM ET
    I too want to be optimistic. I do. But it's really hard to shake the idea that this is all being run by bunch of four star clowns who are gonna end up giving the whole circus away.
  • John Regan |January 28, 4:18 PM ET
    I'm afraid this is not good news at all. The banks should not be let off the hook for robo signing, and should not be permitted to continue the practice. Please see my post at
  • James Etling |January 28, 3:03 PM ET
    Nice to know some people in government are into that "justice" thing.

    In yor earlier post, you had pondered that Schneiderman already had the authority to take on the banks prior to this new post and responsibility. But as US Attorney for NY, would he have the rhe reach to address matters abroad? These banks are all MNCs, and have their greedy little fingerprints all over the globe - including assets offshore waiting for a tax holiday or in the Swiss accounts of the officers.

    I want to be optomistic and believe that when Obama said Jamie Dimon was smart, he was setting himself up to later point out that he wasn't smart enough to evade federal prosecutors. - that's the audacity of my hope, at least.
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