Will it really help people? And will it really stop banks from breaking the law? These are two key questions regarding the announced-but-not-finalized mortgage fraud settlement addressed in two articles today by Gretschen Morgenson (NYT) and Michael Hiltzik (LA Times). I found both articles valuable and would encourage those looking (like me) to wrap their heads around this thing to check them out.
Morgenson, after deftly summarizing what's been announced about the deal and concluding that banks should be happy with it, moves on:
But perhaps the largest question looming over this settlement is how it will be policed. Recent history is littered with agreements that required banks to take specific steps to make amends. All too often, the banks have skated away from their promises.
She cites a similar deal regarding predatory lending. with Bank of America in 2008 in which the bank was to provide $8.4 billion in loan modifications. Sounds good, right? But what happened was ....
But Bank of America, Countrywide’s parent, defied many aspects of the settlement, according to Catherine Cortez Masto, Nevada’s attorney general. She sued Bank of America last summer, contending that it had raised interest rates on loan modifications even though Countrywide had promised to lower them.
Bank of America also declined to provide loan modifications to qualified homeowners as required in the deal and improperly proceeded with foreclosures while borrowers’ modification requests were pending, Ms. Masto’s suit said. Furthermore, the bank failed to meet the settlement’s 60-day requirement on granting new loan terms, allowing months — and in some cases, more than a year — to go by with no resolution, the lawsuit said.
And similar lack of bank compliance marked the Foreclosure Mediation Program in Nevada.
In fact, if we had really followed laws around banks and mortgages in the first place we wouldn't need a settlement. That's what makes the new settlement's commitment to do things right this time ring hollow, according to Michael Hiltzik:
Supposedly a big part of the deal is the implementation of new foreclosure standards to end the abuses that made the deal necessary. These standards require banks seeking to foreclose henceforth to submit sworn affidavits that are accurate about the amounts owed and the legal right of the servicer to proceed, and require that the bank officers who sign them to actually examine the documents they swear to have examined.
In other words, no more "robo-signing." Assertions the banks make in court will have to be "accurate." Banks will have to give borrowers complete and accurate information about their loans, suspend foreclosure proceedings once they start working on a loan modification, apply mortgage payments promptly, keep accurate loan records and communicate effectively with borrowers.
I believe the technical term for all this is "big whoop." The provisions mostly require mortgage lenders and servicers to comply with what I would have thought was already the law, which prohibits, you know, criminal fraud. The rest is pretty much out of the best-practices manual of customer service, which benefits both the customer and the institution.
So there you have it. For those of us looking for a return to rule of law between the powerful banks and regular Americans there are a lot of questions about this deal. Banks did not get punished that much ($5 billion), and recent experience suggests they won't even pay that. Hearing them promise "we will really follow the law this time" is not persuasive. It's easy to foresee the same government that made this settlement be less than aggressive in the face of future bank law-breaking.
The settlement is a good deal for banks even if they follow it:
There’s no doubt that the banks are happy with this deal. You would be, too, if your bill for lying to courts and end-running the law came to less than $2,000 per loan file.
Will the government hold them to this low bar?
Anyway, check out the articles if you have time.