Reviewing the Foreclosure Fraud Settlement

When the news broke about the settlement with the large mortgage servicing banks, led by the National Association of Attorneys General in cooperation with about a dozen federal agencies, I was happy and hopeful that the long months of work to get this done had come to a fruition about which I could be proud.  I knew it was possible, however, that the banks, partly through dragging their feet and partly through lobbying efforts, had gotten their way and avoided penalties for their despicable role in creating the housing bubble and unconscionably pushing foreclosures through without documentation or serious efforts to modify mortgages.

Probably both situations are partly true.  The reviews of the settlement by colleagues I have worked with in this effort have not been very favorable.  Today I will look at the criticisms from Dean Baker of the Center for Economic and Policy Research in light of the goals I previously highlighted in a July 2011 posting.  There I wrote the following.

Among the key items of our agenda are:

• broad availability of principal reductions to reset the housing market and remove the risk of more foreclosures;
• remedies for all who have been harmed by fraud or other criminal acts, whether they have already suffered foreclosure, are in process, or are facing impending foreclosure;
• the end of dual tracking, with simultaneous loan modification discussions and foreclosure procedures;
• all possible efforts for loan modifications and other non-foreclosure procedures should precede the initiation of foreclosure procedures;
• criminal prosecutions for criminal acts; and
• regulatory regimes to keep this kind of mortgage fraud from being repeated.

Baker's criticisms, which he calls the "big three" among many others that can be made, address a number of the points above.

He says first that it is not clear which loan modifications, principal reductions, and short sales will count toward the $17 billion amount the banks agreed to.  Will cases already completed or in progress count?  If so, then what does the dollar number mean about what banks will be expected to do now that the settlement has been agreed.  This raises the question whether there is "broad availability" of solutions, especially principal reductions, for homeowners.  If they can count what they have already done, and this pitifully small number has been set aside for the banks' total requirement, then most families facing foreclosure will not find any help in this settlement.

Second, Baker says, the banks may count loans they "service," not only loans they own.  So any principal write-downs or short sales in cases of serviced mortgages will not come out of the banks' own money.  They will be taking the money from owners of mortgage-backed securities or other purchasers of mortgages.  Obviously, it will be in their interest to use this legal caveat to avoid charging themselves any financial cost for their role in this crisis affecting so many homeowners.  In that sense, the agreement does not penalize the banks.  It allows them to use court authority to penalize investors.

Baker's third criticism addresses the last four of my points in the list above.  He says that thus far there is little evidence that the abuses that have led to and perpetuated this crisis have stopped.  He cites a case in San Francisco County, CA, in which an audit in the past month revealed a steady pattern of continued incomplete, falsified, and otherwise illegal documentation in foreclosure filings.  Fully 84% of the hundreds of filings had at least one violation of the law.  This matter of changing the way things are done is why North Carolina United Power continues its organizing strategy to audit county records to look for cases of foreclosure fraud.  Citizens, and public officials who will rise to their calling as public servants, must continue to gather data and press the case for changing the way of doing business when it comes to banking, mortgage, and foreclosure.

Defending Our Homes and Communities from NC UnitedPower on Vimeo.