Who benefits from bank mortgage settlement?
The purpose of a headline, whether it's a newspaper article, magazine or even a television teaser, is to briefly and quickly draw attention to the story that follows. But what if there is no real story, only the headline? Is there still a story?
There were headlines all over the place three weeks ago when the announcement was made by the president that the federal government and five major banks reached a $25 billion settlement over alleged foreclosure abuses. The five banks involved in the settlement were Ally Financial, Inc., Bank of America Corp., Citigroup, Inc., J.P. Morgan Chase & Co., and Wells Fargo & Co. Every state in the union participated in the settlement with the exception of Oklahoma for reasons that are too convoluted for me to understand or explain.
So who does this settlement benefit? Apparently only $1.5 billion goes to victims of the wrongful foreclosures that occurred between January 2008 and December 2011, which was the real reason the law suits were originally filed. $10 billion will go toward principal reduction for delinquent borrowers or borrowers on the brink of foreclosure that had nothing whatsoever to do with foreclosure abuses.
The balance of the $25 billion will go for refinancing programs for qualified homeowners who owe more on their mortgage than the property is worth; borrowers who went through foreclosure during the past four years will be eligible to receive cash payments of between $1,500 and $2,000; and a very large chunk will go to individual states and the federal government in the form of fees. However, since the devil is always in the details, chances are there are other hands in the pot still to be disclosed.
Although the settlement is being promoted as a landmark settlement that will provide relief to hard hit homeowners, speed up the recovery of the housing market and end abusive practices of the mortgage industry, most people in the know just aren't buying it. There's no doubt that banks buried in foreclosures started robo- signing foreclosure paperwork, but there is little if any evidence that banks actually foreclosed on homeowners who were not in default.
What the inception of these lawsuits did do was stop or substantially slow down the foreclosure process for several years prior to this settlement. The big question now is what impact this will have on restarting the foreclosure process and will it throw millions more properties into the marketplace further slowing down the recovery? Since 42 percent of all borrowers with loans in foreclosure haven't made a mortgage payment in two years, this is a real possibility. Not to mention the 10.7 million residential properties that is currently underwater according to CoreLogic.
So back to the question of who is really benefiting from the settlement. First of all, the banks that are now guaranteed they will not have to face lawsuits. Most banks had already allocated funds anticipating a settlement, so basically it's their shareholders who are being hit. The states' attorneys general are also happy, they don't have to pursue costly legal action and they look like they've protected the public. But the real winner here is the politicians, the ones who first found the alleged abuses and the ones who are generating income for their states and the federal government.
Sometimes a headline is nothing more than a headline, even if it has a story below.
