The Department of Justice
announced today that the nation's largest banks, the federal government, and the states agreed to a long-awaited legal settlement over foreclosure fraud. Forty-nine states joined the settlement, along with Bank of America Corporation, JPMorgan Chase & Co., Wells Fargo & Company, Citigroup Inc. and Ally Financial Inc. (formerly GMAC).
The Justice Department is calling the $25 billion agreement "the largest federal-state civil settlement ever obtained." It is, however, as Matt Yglesias points out smaller than the $250 billion tobacco settlement from the 1990s, and a drop in the bucket when the scope of the housing crisis is considered.
About one in five homeowners is underwater on their mortgage by an average of $50,000, amounting to something like $700 billion in negative equity. It's expected to help about a million underwater homeowners with either principle reduction or refinancing. Another 750,000 who lost their homes to foreclosure fraud will receive direct payments of $2,000. That's definitely small compensation, maybe two months rent, for the loss of a home.
The banks are getting off pretty damn easy on the financial side of this. What makes the settlement less of a disaster than what it looked like even a few months ago is that, thanks to the concerted efforts of a handful of attorneys general (Eric Schneiderman of New York, Kamala Harris of California, Catherine Cortez-Masto of Nevada, Beau Biden of Delaware, Martha Coakley of Massachusetts and Lori Swanson of Minnesota) who refused to sign on to an agreement that gave the banks blanket immunity, legal immunity has been limited to banks very narrowly to robo-signing issues, and investigation of the residential mortgage backed securities market can still procede.
The lawsuits brought by Schneiderman in New York, Biden in Delaware and Coakley in Massachusetts will proceed. Additionally, Harris has preserved her right to undertake separate litigation under the California False Claims Act. What's more, no private rights of action have been waived—individual homeowners can still sue for foreclosure fraud.
The concessions that those hold-out attorneys general were able to wring out the banks were critical for investigations and potential prosecutions in the massive fraud these banks committed. Those investigations, at the state and federal level, if pursued with vigor and a real intention to hold the banks accountable could potentially do what this settlement absolutely won't: Force the banks to reform.