Early Thursday morning, the Obama administration announced a $26 billion fraud settlement binding five banks over their fraudulent foreclosure practices. The settlement could provide relief to nearly two million current and former homeowners but falls short of addressing the $700 billion in underwater mortgage debt.
But it is a start and there’s reason to think we’ll see more in the way of investigations and prosecutions.
First, let’s look at the details of the deal. Under the settlement, about 1 million homeowners will see the principal (size) of their mortgage reduced to reflect depreciation in value. For another 750,000 families or individuals who lost their homes to foreclosure, each will receive checks for about $2,000 each. Importantly, anyone who accepts the restitution payment also retains their right to participate in future lawsuits.
The settlement currently impacts claims against Wells Fargo, Bank of America, J.P. Morgan Chase, Ally Financial and Citigroup but could grow if the nine other mortgage servicing companies also under investigation sign on.
Admittedly, the impact of this settlement on consumers’ pockets or the housing market will be minimal. But if there is an upside to the deal, it is that the banks still maintain legal exposure and other, more aggressive prosecutions like the one brought by New York Attorney General Eric Schneiderman.
The whole unfolding of these claims and settlement is starting to feel more and more like an old-fashioned mass tort asbestos-style resolution. We already have some jurisdictions in places like Florida establishing specialty foreclosure courts to process the sheer volume of claims, and, just like asbestos claims, many parties along the market-chain are involved and share some culpability, making individual prosecution a time and labor intensive proposition. And given the trickle of settlements and open-ended releases, it looks like we’ll be litigating foreclosure fraud cases for years to come.
But maybe more importantly, that mortgage claims now resemble asbestos claims speaks quite persuasively about the products these banks have been pushing.
Photo from respres via flickr.