SALON

Tuesday, Jan 8, 2013 1:56 PM UTC

Major settlements better for banks than homeowners

Ten big banks including Bank of America and Wells Fargo agreed to billions in payouts but still get off lightly

By

Topics: Foreclosure, Mortgage Crisis, Fannie Mae, Bank of America, Wells Fargo, settlement, Federal Reserve, Banking, ,

Major settlements better for banks than homeowners (Credit: Shutterstock/Ragma Images)

Two major settlements between 10 big banks and the government Monday totaling over $20 billion aimed to clear up allegations of widespread malpractice relating to the mortgage crisis. But what at first looks like great news for the 4 million Americans forced into foreclosure between 2009 and 2010, may be a greater boon to banks than burned homeowners.

In one settlement, Bank of America agreed to pay $10 billion to mortgage guarantor Fannie Mae to settle claims that Bank of America sold Fannie Mae bad loans for 10 years. As part of the agreement, Bank of America will also buy back $6.75 billion of bad mortgage loans. All of this settlement money will go directly to the U.S. Treasury (neither Fannie Mae nor Freddie Mac is permitted to keep profits). But as the Guardian’s Heidi Moore pointed out, “the deal between Bank of America and Fannie Mae contains no mechanism by which the money would reach the homeowners who signed bad loans.”

The second settlement reached Monday, in which 10 major banks, including BofA, Wells Fargo and JPMorgan Chase, will pay out $3.3 billion in cash to 3.8 million mortgage borrowers who were foreclosed upon in 2009 or 2010, looks more promising in terms of compensating mortgage crisis victims. Thousands of homeowners who lost their homes due to shoddy or lost paperwork, bad loan modifications or “robo-signed” foreclosure decisions, which were not even reviewed by human eyes, could receive up to $125,000. Via the Wall Street Journal:

Under the settlement, borrowers are expected to be contacted by March 31 with details of their payments. They will vary from several hundred dollars for minor violations to $125,000 for violations of a law that bans military foreclosures or a foreclosure on a borrower who didn’t miss any payments. The 495,000 borrowers who have already submitted claims through this process are expected to get larger payouts, regulators said.

“A couple hundred dollars will be nothing,” said Geralyn Burrell, a 56-year-old Henderson, Nev., paralegal who nearly lost her Las Vegas home to foreclosure three separate times and was among the borrowers who submitted claims.

Consumer advocates said the deal was not as meaningful as regulators said. “It’s chump change,” said Diane Thompson, a lawyer with the National Consumer Law Center. “It’s another example of the banks getting off easy.”

Meanwhile others have criticized plans for distributing the settlement money. The Office of the Comptroller of the Currency and the Federal Reserve Board (the two government bodies that agreed on the settlement with the 10 banks) had ordered independent reviews of foreclosure fraud cases to determine which homeowners were to be compensated. However, the use of independent consultants for this process was determined to be too costly and time-consuming. “The regulators, essentially admitting that the reviews were too difficult to conduct, and that assigning appropriate compensation to those most harmed by the banks was no longer a priority, said the mortgage companies themselves will determine how to distribute $3.3 billion,” wrote HuffPo’s Eleazar David Melendez and Ben Hallman.

“It is just incomprehensible to me that they could not find a third party that has the wherewithal and independence to fairly determine what the damage is to homeowners,” John Taylor, president of the National Community Reinvestment Coalition, a Washington-based housing nonprofit, told HuffPo. Other commentators are skeptical that much compensation will reach hurt homeowners; as the Guardian’s Moore noted, “if recent history is any indication … it will be hard for [homeowners] to see much of that money.”

Although both Fannie Mae and the Comptroller of the Currency/Fed settlements will see big banks making major payouts, it’s a small price for them to put an end to the dark chapter of the housing bust –  a luxury many still-suffering homeowners cannot afford.

 

Natasha Lennard is an assistant news editor at Salon, covering non-electoral politics, general news and rabble-rousing. Follow her on Twitter @natashalennard, email nlennard@salon.com. More Natasha Lennard.

Next Article

Related Stories

More Related Stories

Featured Slide Shows

The week in 10 pics

close X
  • Share on Twitter
  • Share on Facebook
  • Thumbnails
  • Fullscreen
  • 1 of 11
  • This photo. President Barack Obama has a laugh during the unveiling of the George W. Bush Presidential Center in Dallas, Tx., Thursday. Former first lady Barbara Bush, who candidly admitted this week we've had enough Bushes in the White House, is unamused.
    Reuters/Jason Reed

  • Rescue workers converge Wednesday in Savar, Bangladesh, where the collapse of a garment building killed more than 300. Factory owners had ignored police orders to vacate the work site the day before.
    AP/A.M. Ahad

  • Police gather Wednesday at the Massachusetts Institute of Technology to honor campus officer Sean Collier, who was allegedly killed in a shootout with the Boston Marathon bombing suspects last week.
    AP/Elise Amendola

  • Police tape closes the site of a car bomb that targeted the French embassy in Libya Tuesday. The explosion wounded two French guards and caused extensive damage to Tripoli's upscale al-Andalus neighborhood.
    AP/Abdul Majeed Forjani

  • Protestors rage outside the residence of Indian Prime Minister Manmohan Singh Sunday following the rape of a 5-year-old girl in New Delhi. The girl was allegedly kidnapped and tortured before being abandoned in a locked room for two days.
    AP/Manish Swarup

  • Clarksville, Mo., residents sit in a life boat Monday after a Mississippi River flooding, the 13th worst on record.
    AP/Jeff Roberson

  • Workers pause Wednesday for a memorial service at the site of the West, Tx., fertilizer plant explosion, which killed 14 people and left a crater more than 90 feet wide.
    AP/The San Antonio Express-News, Tom Reel

  • Aerial footage of the devastation following a 7.0 magnitude earthquake in China's Sichuan province last Saturday. At least 180 people were killed and as many as 11,000 injured in the quake.
    AP/Liu Yinghua

  • On Wednesday, Hazmat-suited federal authorities search a martial arts studio in Tupelo, Miss., once operated by Everett Dutschke, the newest lead in the increasingly twisty ricin case. Last week, President Barack Obama, Sen. Roger Wicker, R.-Miss., and a Mississippi judge were each sent letters laced with the deadly poison.
    AP/Rogelio V. Solis

  • The lighting of Freedom Hall at the George W. Bush Presidential Center Thursday is celebrated with (what else but) red, white and blue fireworks.
    AP/David J. Phillip

  • Recent Slide Shows

  • Share on Twitter
  • Share on Facebook
  • Thumbnails
  • Fullscreen
  • 1 of 11

Related Videos

Comments

 2 Comments

Comment Preview

Your name will appear as username

You may use these HTML tags and attributes: <a href=""> <b> <em> <strong> <i> <blockquote>

follow salon

Most Read

Popular on Reddit

links from salon.com

From Around the Web

Presented by Scribol
listener_new_rect The Listener: "The Shelter Cycle": Raised in a cult

Recommendations