Today's Mortgage Settlement: Mega-Banks Got a Slap on the Wrist for Trampling the Law (We Probably Don't Even Know the Half of It)
The bank settlement of $25 billion over three years from five major banks for robo-signing forgeries is being hailed in Washington and scoured by leading bank critics. I’m reminded of Groucho Marx, who said upon being invited to join a country club: "I wouldn’t want to belong to any club that would have me." Similarly, it is hard not to be suspicious of any deal that the banks would sign.
But the deal should be seen for what it is – a relatively small ante by the banks handed out before the real cards are seen.
What’s clear is that the banks trampled the law in their wilding while blowing up the housing bubble. They abused homeowners, committed routine forgery and perjury before the courts, and defrauded investors. The housing market then collapsed, leaving homeowners about $700 billion under water (owing that much more on their mortgages than their houses are worth).
The banks are looking for a deal that will relieve them of untold criminal and civil liabilities. Untold is the right word because, outrageously, there has been no real investigation into the scope of their crimes. The state attorneys general simply don’t have the resources. The federal government does, but once the administration decided to continue President George W. Bush’s policies of bailing out the banks without reorganizing them, it has been committed to keeping insolvent banks afloat, not holding them accountable.
So the administration and some state attorneys general started pushing a deal that would relieve the banks of immunity. Some courageous attorneys general —Eric Schneiderman of New York, Beau Biden of Delaware, Catherine Cortez-Masto of Nevada, Martha Coakley of Massachusetts, Kamala Harris of California and others—held out. Schneiderman led the effort to limit the scope of immunity offered the banks, expand the settlement, and force the administration to launch a real investigation at the federal level.
So this deal is the result. It gets a relatively small sum from the banks in exchange for limited immunity on their flagrantly illegal robo-signing – or forgery – of mortgage documents. The money will provide homeowners with the possibility of real legal assistance and small amounts of relief. No private rights of action have been waived. The suit brought by Schneiderman against Mortgage Electronic Registration Systems, or MERS – the bank creation that simply trampled hundreds of years of property laws – continues, and other state attorneys general should follow suit. Schneiderman now co-chairs a federal task force charged with doing a real investigation that could result in a serious settlement.
The deal has been cut before the investigation so it is suspect on its face, but limited in its scope. Whether it will be enforced adequately remains to be seen. How homeowners benefit will differ from state to state.
The real question isn’t this ante. The real question is whether the federal investigation will finally turn over all the cards so we know just how bad a hand the banks are holding. Only then is there a possibility for real accountability – and real relief for homeowners.
So this settlement must be the beginning, not the end. We have to sustain pressure on the administration for an aggressive investigation. State criminal and civil suits, individual and investor relief have to continue. We are a far remove from achieving the justice and accountability that are due.