Mortgage Crisis Settlement

“We can either have a rational resolution to the foreclosure crisis or we can preserve the capital structure of the banks,” said [Damon Silvers of the Congressional Oversight Panel] in October, 2010. “We can’t do both.”

  Salon

So go ahead and take a guess as to which they're doing.

On Thursday, a group of well-connected and powerful men announced that the federal government and state attorneys general had agreed to a multi-billion-dollar settlement of claims relating to falsified foreclosure documents. The image of former corporate lawyer-turned-Attorney General Eric Holder and Iowa official Tom Miller complimenting each other on their courage and bravery was a stark reminder of how little power foreclosure victims have in Washington. The terms of the settlement were still secret, but we saw hints of what is to come: The website set up to inform the public noted that homeowners may not know for up to three years whether they are eligible for help.

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Undergirding all of the chatter about the settlement is a basic reality that is not acknowledged by the administration. There has simply been no thorough investigation of how the mortgage servicer market works, or how extensive forgery and fraud are. Banks routinely claim that few people have lost their home due to faulty foreclosures, and while that’s probably not true, we simply don’t know the extent of the problem. In effect, this settlement is a solution imposed on a problem yet to be diagnosed.

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HAMP [- the $75 billion program announced in March 2009 as the administration’s signature program to address problems in the housing market - was] created because Sen. Jeff Merkley of Oregon demanded some remaining bailout money be used to help homeowners, or he would withhold a critical vote on unlocking the authority for the administration to get more TARP money. Larry Summers sent a letter to Merkley offering both a debt write-down plan (“cramdown”) and the dedication of up to $75 billion of money to help homeowners, in return for his vote. In fact, administration officials had already decided that they would not pursue a debt write-down.

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Laura Tyson at the Financial Times’ View from the Top Conference in 2011 [...] 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.

In this case our foreign policy and domestic policy dovetail nicely – no debt write offs for third world countries either, just loan them more money they can’t pay back. Of course, when it comes to finances, our foreign and domestic policy makers are the same: banksters and corporations.

When you issue parking tickets instead of handcuffs for multi-billion-dollar crimes, the crime spree continues unabated.

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The Nevada attorney general recently sued Bank of America for violating an agreement the state had made with Countrywide (once the largest mortgage originator in the country, now owned by BOA) to end various predatory practices.

But surely Obama’s new investigation into “alleged” fraud will dig in and finally bring all this to closure and some justice.

At the State of the Union, the president announced a new task force to investigate the abuses leading up to the mortgage crisis, as well as related tax and bank fraud questions. This force is a multi-headed hydra, led by officials from the Department of Justice and New York Attorney General Eric Schneiderman.

The initial signs aren’t hopeful; DOJ has assigned 55 people to the task force, including 10 FBI agents. During the S&L crisis, which was 40 times smaller than this one, roughly 1,000 FBI agents were involved in the investigation.

...but hey, do what you want...you will anyway.

PS: a reminder of the outcome of the S&L crisis for future comparison…

In the wake of that debacle, special government task forces referred 1,100 cases to prosecutors, resulting in more than 800 bank officials going to jail.

  NYT