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Banks Flirt With Foreclosure Settlement

Banks Flirt With Foreclosure Settlement

The nation’s largest banks took their first tentative steps toward settlement as they offered to pay up to $5 billion to settle claims related to allegations of foreclosure fraud.  The amount represents a fraction of the potential liabilities for the banks and is far short of the more than $20 billion in penalties alone sought by officials.

The Wall Street Journal offers up the contours of the initial negotiations.  While a final deal is far, far away, the key points of discussion are helpful in gauging just how severely these institutions will be punished for their role in the collapse of the housing market.

Government officials have two broad categories they want addressed: Changes in mortgage-servicing practices and allocation of penalties including the reduction of loan balances for certain borrowers, such as those who now owe more on their mortgage than their house is worth through no fault of their own.

Not surprisingly, the banks are pushing back hard and have said they are not willing to negotiate on any write-down of principal balances, arguing it would incentivize people to simply default on their mortgages.

Instead, the banks have essentially offered a $5 billion compensation fund used to compensate any borrowers previously wronged in the foreclosure process and provide transition assistance for borrowers who are ousted from their homes.  One idea being floated is that a foreclosed borrower could qualify for several months of free rent once they find new housing.  The banks are also seeking a general release of all claims from the government.

Let’s be frank here.  There will be a settlement at some point.  Neither side wants the expense or the uncertainty of a trial.  But to even remotely address the magnitude of the losses caused by the widespread fraud perpetrated by the mortgage banking industry a compensation fund of a few billion dollars and not much else will not do.

 

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photo courtesy of respres via Flickr

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24 comments

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7:53PM PDT on Jul 14, 2011

THANKS

8:28PM PDT on May 13, 2011

This is the biggest mess and we all know a mere fraction of it. I have recently been looking into buying a condo. The racism is true. I recently looked into a building that was bought by a developer who did nothing to the property but then sold the apartments to the tenants at inflated prices. These are the worst condos you can imagine sold at $260,000 a pop, in a building full of code violations. The building was completely low income Mexican-Americans given subprime loans plus the bank never checked the actual value of this slum-condo. This bank fraud, developer fraud, and unfortunately ignorant and desperate low income consumers wanting simply to stay in their homes. These condos are now selling for 10K - 14K!!! There are many other places like this and weird stories of wide spread Fraud that is beyond mind boggeling. In my zipcode alone there are over 600 foreclosed or shortsales on the market. Unraveling ALL the fraud would take years!

6:22PM PDT on May 13, 2011

I say "let's take the banks & wall street to court!"
Wouldn't that be just too wonderful if we could?!

4:35PM PDT on May 13, 2011

Still too much victim blaming going on.

12:47PM PDT on May 13, 2011

The banks and all private and commercial lenders should have to renegoiate loans. The housing market collapse because of their greed and now more people are under water, they owe more than their house is worth. They didn't cause this and should not have to suffer through the turn-around period. In fact, if the lending institutions did renegoiate loans there would be less people, many even no more, losing their homes. And it would make money available that is not cureently available to be spend.

I am not for any settlement. I am for making these lending institutions and private holder of loans to do the right thing for the people who hold loans with them and for the country.

12:01PM PDT on May 13, 2011

Janice A., Sorry, I feel your pain. I know it doesn't help but not one of WE People has had any good news lately.

11:56AM PDT on May 13, 2011

The government's part in the economic meltdown is due to deregulation of our financial services industry through The Gramm–Leach–Bliley Act (GLB), also known as the Financial Services Modernization Act of 1999 pushed through Congress by the Republicans and signed into law by Bill Clinton.

The Financial Reform Bill signed into law, July 21, 2010 puts regulations over the financial services industries back and is to prevent abuses. It is this law that Republicans and the financial services industries want repealed along with the Health Care Reform Bill.

I agree with those of you who would like to see the Wall Street and Bankers who pulled the housiing scam go to jail as well as pay hefty fines.

The only way for the housing market to recover would be to remake fair mortgages to those owners in danger of defaulting and able to pay the new mortgage. If there is a loss because of the devalued rate, then it should be born by the bank
and the Wall Street firm who cut up the mortgage and sold it in pieces.

11:35AM PDT on May 13, 2011

How about putting an equal amount of money for whatever this settlement turns out to be, in a fund to help the homeless and poor left on the streets as a result of the fore closures.

10:49AM PDT on May 13, 2011

David J., you should read Janice A's story. It is the story of all the people caught in this foreclosure madness. People of color were given sub-prime mortgages for more than the worth of the house. Whites were given regular mortgages for the real value of your homes. My former landlady and her mother took out "2" mortgages for a combined total that was nearly "3" times the worth of the home. She is a professional woman who could pay for her home, but instead bought another home for her family to live in using those funds and not paying the mortgage. The other people in foreclosure were given mortgages like hers, but they want to live in their homes and can't, not because they can't pay a real mortgage, not a scam, but because it was set up so they would find themselves right where they are now, broke, near or homeless and the banks richer, not wanting to take responsibility for their actions. BUT they were bailed out so they wouldn't go belly up when their scheme blow up in our faces. And as usual, they don't want to share YOUR wealth, TAXPAYERS did pay for it.

10:07AM PDT on May 13, 2011

Maybe this is a dumb question, but just WHO gets the settlement money, and what will it be used for? Can we- gasp- think it might trickle down to the peons? Or- double gasp- pay down the Ntional debt a teensy bit? Or am I still dreaming...

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Disclaimer: The views expressed above are solely those of the author and may not reflect those of
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Colleen H. Colleen H. is an Online Campaigner with Care2 and a recent transplant to San Francisco from the East... more
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