<div dir="ltr">
<div class="">
<div class="">
<a href="http://www.nytimes.com/"><img src="http://graphics8.nytimes.com/images/misc/nytlogo153x23.gif" alt="The New York Times" align="left" border="0" hspace="0" vspace="0"></a>
</div>
<div class="">
</div>
</div>
<br clear="all"><hr align="left" size="1">
<div class="">January 14, 2013</div>
<h1>The Foreclosure Fiasco</h1>
<h6 class="">By
<span><span>JOE NOCERA</span></span></h6>
<div id="articleBody">
<p>
It’s been five days since <a title="Read the article here" href="http://www.nytimes.com/2013/01/11/business/bank-deal-ends-flawed-reviews-of-foreclosures.html">Jessica Silver-Greenberg’s article</a>
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. </p>
<p>
Shall we count the ways? </p>
<p>
1. <em>It is more about public relations than problem-solving.</em> 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. </p>
<p>
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.) </p>
<p>
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 <a href="http://www.americanbanker.com/issues/177_212/foreclosure-reviews-exorbitant-for-banks-gold-mines-for-consultants-1054069-1.html">American Banker</a>,
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. </p>
<p>
2. <em>Accountability? What’s that?</em> 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. </p>
<p>
3. <em>It won’t actually help anybody.</em> 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. </p>
<p>
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. </p>
<p>
4. <em>The money is being distributed with no regard to whether a borrower suffered harm.</em>
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. </p>
<p>
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.” </p>
<p>
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 <a title="A Times article" href="http://www.nytimes.com/2010/12/23/nyregion/23health.html">the $4.3 billion fund</a>
established by Congress to compensate people who became sick because of
their exposure to toxic dust created by the 9/11 attacks. Even though <a href="http://www.nytimes.com/2012/12/19/nyregion/no-clear-link-between-cancer-and-9-11-debris-new-york-health-dept-study-finds.html">there is no scientific evidence</a>
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. </p>
<p>
Or take Toyota, which <a title="A Times article" href="http://www.nytimes.com/2012/12/27/business/toyota-settles-lawsuit-over-accelerator-recalls-impact.html">recently paid $1 billion to settle a lawsuit</a>
claiming that an electrical flaw caused some accelerators to stick —
even though there turned out to be no evidence to support that claim.
</p>
<p>
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. </p>
<p>
That is what the federal government did last week in its settlement with the banks. It’s nothing to be proud of. </p>
<div class="">
</div>
</div>
<br clear="all"><br>-- <br>Art Deco (Wayne A. Fox)<br><a href="mailto:art.deco.studios@gmail.com" target="_blank">art.deco.studios@gmail.com</a><br><br><img src="http://users.moscow.com/waf/WP%20Fox%2001.jpg"><br>
</div>