Under the terms of the 50-state mortgage foreclosure settlement, US taxpayers could end up paying billions in penalties that were supposed to be paid by the banks. That's the gist of a front-page story which appeared in the Financial Times on Thursday, February 17. The widely-cited article by Shahien Nasiripour notes that the 5 banks that will be effected by the settlement - Bank of America, JPMorgan Chase, Citigroup, Wells Fargo and Ally Financial - will be able to use Obama's mortgage modification program (HAMP) to reduce loan balances and "receive cash payments of up to 63 cents on the dollar for every dollar of loan principal forgiven."
And that's not all. If borrowers stay current on their payments after their loans are restructured, the banks could qualify for additional government funds which (according to the FT) "could then turn a profit for the banks according to people familiar with the settlement terms."
How do you like them apples? Leave it to the bank-friendly Obama administration to turn a penalty into a windfall. In effect, the settlement will help the banks avoid losses on mortgages that are vastly overpriced on their books and which were probably headed into foreclosure anyway.
Taxpayers will stump up the money for the principle writedowns that will allow the banks to extract even more tribute from underwater homeowners. What kind of penalty is that?
Here's how Mark Gongloff sums it up over at Huffington Post:
"Banks will get government cash as an incentive to work down mortgages as part of a settlement that is supposed to punish them for their malpractice. Banks have been getting taxpayer money under loan modification programs like HAMP all along: $615 million in modification incentives so far. Those incentives were tripled on Jan. 28 just days before the mortgage settlement was announced, making the deal appear even sweeter for the banks.
"You can't say this settlement has anything to do with deterrence or is punitive in nature if money is flowing into banks from taxpayers as part of the settlement," said New York University Law professor Neil Barofsky, former special inspector-general of the Troubled Asset Relief Program." ("Mortgage Foreclosure Settlement: Who Pays?", Huffington Post)
Of course, no one knows for sure how many perks and "bennies" the banks will eventually nab, because the written copy of the settlement still hasn't been released. Our guess is that the banks' will come out smelling like a rose and that the 50 Attorneys General will end up looking like fools for taking their victory lap too soon.
Keep in mind, that the banks are really only on the hook for $5 billion in cash. The rest of the $25 billion settlement will be shrugged off onto investors in mortgage-backed securities (MBS) many of who are retirees and pensioners. They're going to get clobbered while the perpetrators of this nationwide crime walk away Scott-free.
It's also worth reviewing what this case is all about, which is industrial-scale fraud directed at millions of people whose lives have been ruined by the banks. Here's a clip from an article in Reuters that helps to put it all in perspective:
"A report this week showing rampant foreclosure abuse in San Francisco reflects similar levels of lender fraud and faulty documentation across the United States, say experts and officials who have done studies in other parts of the country.
The audit of almost 400 foreclosures in San Francisco found that 84 percent of them appeared to be illegal, according to the study released by the California city on Wednesday.
"The audit in San Francisco is the most detailed and comprehensive that has been done - but it's likely those numbers are comparable nationally," Diane Thompson, an attorney at the National Consumer Law Center, told Reuters.
Across the country from California, Jeff Thingpen, register of deeds in Guildford County, North Carolina, examined 6,100 mortgage documents last year, from loan notes to foreclosure paperwork.
Of those documents, created between January 2008 and December 2010, 4,500 showed signature irregularities, a telltale sign of the illegal practice of "robosigning" documents." ("Foreclosure abuse rampant across U.S., experts say", Reuters)
Repeat: "84 percent of them appeared to be illegal ...(and) those numbers are comparable nationally."
So, why are we talking about "mortgage foreclosure settlements" instead of criminal prosecutions? Why hasn't anyone gone to jail with evidence this compelling?
Look: The banks have been foreclosing on homes they don't even legally own. That's what robosigning is. Would you be willing to accept a measly $2,000 for being tossed out of your home and onto the street by someone who doesn't even own the mortgage? Of course, not.
9 million homes have been lost to foreclosure since 2007, and there will be another 9 million before we're done. Homeowners have lost $8 trillion in home equity (in the last 4 years) and 11 million people are currently underwater on their mortgages. All of this is unprecedented. All of this is the result of fraud.
Forget about the mortgage-foreclosure settlement. It means nothing. Someone has to go to jail. That's what matters.