As part of today’s announced $25 billion settlement for a supposed investigation into fraudulent practices by mortgage lenders and servicers, attorney general Greg Abbott issued a statement outlining relief for Texas homeowners. Texas receives $428 million in the settlement, with $287 million going directly to Texas homeowners. The other $141 million will apparently go to the state treasury for future appropriation by the Texas Legislature:
“Today’s sweeping measure halts past misconduct by large mortgage lenders such as ‘robo-signing,’ inadequate documentation and improper record-keeping. Because of the banks’ misconduct, homeowners have faced unnecessary hardship. Today’s agreement imposes a variety of reforms that are intended to benefit homeowners, help the nation move past the housing crisis and provide certainty to aid our long-overdue national economic recovery.”
It’s hard to read the press release without laughing. But it’s really no different than the national propaganda piece. They both go out of their way to avoid mentioning the “F” word. Why beat around the bush. Why not just call fraud what it is. Forging documents and making things up so you can foreclose on people’s homes is fraud, plain and simple. The last time I checked, packing a bunch of crappy loans you know are going to default and selling the resultant securities as low-risk, A-Grade paper is also fraud. If we’re going to have a frank discussion about what’s ailing the U.S. economy, why not just call a spade a spade. If the government wants to keep bailing out banks, the least they could do is be honest about it. Passing this garbage off as “landmark” relief is utterly ridiculous.
Here’s the official Texas FAQ on the Mortgage Settlement. In the meantime, you can read 12 reasons why the mortgage settlement deal stinks. Essentially, the banks just settled some huge liabilities for forgery and mortgage fraud for pennies on the dollar. A more careful analysis of the deal notes that only $5.9 billion of the $25 billion total is really money from the banks. The other $19.1 billion is essentially taxpayer money in the form of principal write-downs which come from securitized loans.
What the news stations won’t be reporting is the fact that the bulk of this “settlement” money isn’t a payment by the banks, because the writedown’s they’ll be getting credit for are bad debt that will never be repaid anyway. Debt that can’t be paid won’t! In this case, the banks will just get credit for doing something they would have eventually been forced to do anyway. That’s why this deal is such bad policy.
The end result is that investors and taxpayers get to bail out banks yet again. I’m sure professor Black will have some fun breaking down this “landmark” deal in the days and weeks to come. For now, we can all sleep soundly knowing this settlement will force banks to comply with new decrees on servicing and ethical behavior, replacing the old laws on servicing and ethical behavior which they blatantly ignored.
If you’re wondering how other states make out on this deal, that’s a good question. Texas was left holding an empty bag compared to California which has apparently received a commitment of at least $12 billion in principal reductions on mortgages as well as$849 million in refis and $279 million to cover those “oops we stole your home; here’s $2000” checks. California also gets $1.1 billion in forbearance, transition assistance and $3.5 billion to relieve homeowners of unpaid deficiency judgements on foreclosure sales. Any prudent homeowner in Texas has to ask themselves, “Why should a taxpayer in Houston or Wichita bail out irresponsible California homeowners, banks and the state’s public employees’ retirement fund?”
The settlement will undoubtedly do more to help banks limit their overhang of fraud liability than it will to help struggling homeowners. The mortgage write-downs will only address a fraction of the $700 billion of negative equity for U.S. homeowners. While some people will claim this settlement moves the bar forward, I would strongly contest that assumption. Putting a price tag on fraud isn’t going to cure the mortgage market. All it does is insure a continued government backstop of a broken system. We’ll likely see more foreclosures working through the system this year, keeping a lid on prices. That holds true for Texas and the nation as a whole. Locally, the effects will be minimal due to the smaller number of distressed properties. The biggest damage in this settlement lies in how property law has been devastated. Much like the MF Global debacle, we’ve just witnessed a major heist with no criminal prosecutions or accountability.
This farce of a settlement stinks to high heaven, but it’s a good measuring stick by which to judge the current administration’s “priority” on mortgage fraud. Washington just made their priority loud and clear.
Here’s a breakdown of what Texas and other states received in this “landmark” deal…
State Settlement Amounts