[Vision2020] The Foreclosure Fiasco

[Art Deco]

  [image: The New York Times] <http://www.nytimes.com/>

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January 14, 2013
The Foreclosure Fiasco By JOE NOCERA

It’s been five days since Jessica Silver-Greenberg’s
article<http://www.nytimes.com/2013/01/11/business/bank-deal-ends-flawed-reviews-of-foreclosures.html>on
the latest bank settlement was posted on The New York Times’s Web
site.
I’m still shaking my head. Her “story behind the story” of the $8.5 billion
settlement between federal bank regulators and 10 banks over their
foreclosure misdeeds illustrates just about everything that is wrong with
the way the government has handled the Great Foreclosure Crisis.

Shall we count the ways?

1. *It is more about public relations than problem-solving.* Pick a program
— any program — that the Obama administration unveiled to help troubled
homeowners over the past four years. Not one has amounted to a hill of
beans.

This settlement is no different. The country’s primary bank regulator, the
Office of the Comptroller of the Currency — which, along with the Federal
Reserve, engineered the settlement — is trying to make it look like a
victory. Of the $8.5 billion, $3.3 billion will go directly to
foreclosed-upon borrowers, making it “the largest cash payout to date,”
according to Bryan Hubbard, the O.C.C.’s chief spinmeister. (The rest of
the money will consist of reduced interest payments and loan
modifications.)

In truth, the O.C.C. needed to save face after a foreclosure review process
it had mandated had become an expensive fiasco. As amply demonstrated by
Silver-Greenberg and American
Banker<http://www.americanbanker.com/issues/177_212/foreclosure-reviews-exorbitant-for-banks-gold-mines-for-consultants-1054069-1.html>,
the government insisted that the banks hire expensive consultants to do a
review of every foreclosure that took place in 2009 and 2010. The
consultants racked up more than $1 billion in fees, while proceeding at
such a molasseslike pace that the feds and the banks finally threw up their
hands. The settlement made the whole thing go away.

2. *Accountability? What’s that?* We have known for a long time that
overwhelmed bank servicers took shortcuts, like robo-signing, that violated
many state laws. They also put people through hell who were trying to get a
modified mortgage. “I’ve seen marriages break up because of what banks put
families through,” says Elizabeth Lynch of MFY Legal Services. All this
settlement does is push those misdeeds under an $8.5 billion rug.

3. *It won’t actually help anybody.* The settlement will cover some 3.8
million foreclosures. The government is going to distribute $3.3 billion
dollars. It comes to around $1,150 per lost home.

Of course, the O.C.C. says that is the wrong way to look at it: Some people
— military personnel, for instance — could get as much as $125,000 while
others won’t get much at all. People denied a modification will be eligible
for up to $40,000 or $50,000, said Hubbard. I have no doubt that money will
be welcome. But for those who lost their homes because of bank misconduct,
it doesn’t come close to making them whole.

4. *The money is being distributed with no regard to whether a borrower
suffered harm.* In some ways, this is the sorriest part of the whole
episode. The foreclosure review never answered the key question: which
borrowers had legitimate claims against their bank and which didn’t. Thus,
the settlement doesn’t make that distinction. If you lost your house in
2009 and 2010, you are going to get money — whether the bank was culpable
or not. “The notion of error is not involved in this settlement,” conceded
Hubbard.

As a result, those who really were truly harmed by bank behavior will be
shortchanged. As Karen Petrou, the well-known banking consultant, puts it,
the government has “come up with something that gives every borrower —
maybe — a pittance and leaves the truly hurt — and there were many — as
much in the lurch as before.”

This is hardly the only time in recent months that a settlement that is
publicized as righting a wrong instead hands money to people who were never
victimized. Think back to the $4.3 billion
fund<http://www.nytimes.com/2010/12/23/nyregion/23health.html>established
by Congress to compensate people who became sick because of
their exposure to toxic dust created by the 9/11 attacks. Even though there
is no scientific
evidence<http://www.nytimes.com/2012/12/19/nyregion/no-clear-link-between-cancer-and-9-11-debris-new-york-health-dept-study-finds.html>that
the dust caused cancer, the government added cancer to the list of
diseases that would be compensated. The result will be less money for those
who truly did become sick because of their exposure to the 9/11 aftermath.

Or take Toyota, which recently paid $1 billion to settle a
lawsuit<http://www.nytimes.com/2012/12/27/business/toyota-settles-lawsuit-over-accelerator-recalls-impact.html>claiming
that an electrical flaw caused some accelerators to stick — even
though there turned out to be no evidence to support that claim.

People who do these kinds of settlements regularly say that the world has
become so complicated that, more often than not, it is simply too expensive
to figure out who was harmed and who was not. So best just to throw a
little money at everybody and make the problem go away.

That is what the federal government did last week in its settlement with
the banks. It’s nothing to be proud of.


-- 
Art Deco (Wayne A. Fox)
art.deco.studios at gmail.com
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