Ten views of the mortgage settlement

Iowa Attorney General Tom Miller announced yesterday "a landmark $25 billion national joint federal-state accord over mortgage foreclosure abuses and fraud, and unacceptable nationwide mortgage servicing practices." My gut says this deal lets lenders off too easily and will do virtually nothing for most foreclosure fraud victims. A $2,000 check isn't much for people who wrongfully lost their homes, and the amount earmarked for principal reductions would rescue only a tiny fraction of "underwater" borrowers.

I've posted five versions of the case for the agreement after the jump, along with five statements from critics of the deal. Miller's press release includes details on what borrowers in Iowa could receive. Please share your perspective in the comments.

Compete text of Attorney General Tom Miller's statement, February 9:

Miller Announces $25 Billion Joint State-Federal Mortgage Servicing Settlement on Foreclosure Wrongs

State share of national settlement estimated at $40 million

(WASHINGTON, D.C.)  After leading a 16-month nationwide investigation and settlement negotiations involving the nation's five largest mortgage servicers, Attorney General Tom Miller Thursday announced a landmark $25 billion national joint federal-state accord over mortgage foreclosure abuses and fraud, and unacceptable nationwide mortgage servicing practices.

The proposed agreement provides an estimated $40 million in direct relief to Iowa homeowners and addresses future mortgage loan servicing practices.  U.S. Attorney General Eric Holder, U.S. Housing and Urban Development (HUD) Secretary Shaun Donovan and a bipartisan group of state attorneys general announced the settlement at a news conference at the U.S. Department of Justice in Washington, D.C.

"This agreement is very significant in how it addresses the fraud that these banks committed against many homeowners across Iowa," said Miller.  "This agreement not only provides badly needed relief to Iowa borrowers, but it also puts a stop to many of the bad behaviors that contributed to the mortgage mess throughout Iowa and across the country.  This agreement will protect homeowners and ensure they're treated fairly."

Iowa's estimated share of the settlement is $40,235,321.

Iowa borrowers will receive an estimated $5,899,449 in benefits from loan term changes.

Iowa borrowers who lost their home to foreclosure from January 1, 2008 through December 31, 2011 and encountered servicing abuse would qualify for $7,402,512 in payments to borrowers.

The value of refinanced loans to Iowa's underwater borrowers would be an estimated $11,602,880.

The state will receive a direct payment of $15,330,480.

The unprecedented joint state-federal settlement began with a massive civil law enforcement investigation that included state attorneys general and state banking regulators across the country, and several federal agencies.  The settlement holds banks accountable for past mortgage servicing and foreclosure fraud and abuses and provides significant relief to homeowners.  With the backing of a federal court order and the oversight of an independent monitor, the settlement stops future fraud and abuse.

Under the agreement, the five servicers have agreed to a $25 billion penalty under a joint state-national settlement structure.


Servicers commit a minimum of $17 billion directly to borrowers through a series of national homeowner relief effort options, including principal reduction.  Servicers will likely provide up to an estimated $32 billion in direct homeowner relief.

Servicers commit $3 billion to an underwater mortgage refinancing program.

Servicers pay $5 billion to the states and federal government ($4.25 billion to the states and $750 million to the federal government).

Homeowners receive comprehensive new protections from new mortgage loan servicing and foreclosure standards.

An independent monitor will ensure mortgage servicer compliance.

Government can pursue civil claims outside of the agreement, any criminal case; borrowers and investors can pursue individual, institutional or class action cases regardless of agreement.

"One of the hardest battles I fought over the last 16 months was over principal reduction," Miller said.  "At first the banks tried to tell us that was a non-starter.  We kept fighting back, and now I'm very proud to say that we got it across the finish line."  Miller said that targeted principal reduction will be one of the keystones of the agreement, and will help keep many families in their homes and out of foreclosure.  "People will see that this works, it'll result in lower re-default rates, and I think it'll be a catalyst for more," Miller said.

The settlement does not grant any immunity from criminal offenses and will not affect criminal prosecutions.  The agreement does not prevent homeowners or investors from pursuing individual, institutional or class action civil cases against the five servicers.  The pact also enables state attorneys general and federal agencies to investigate and pursue other aspects of the mortgage crisis, including securities cases.

On January 27 U.S. Attorney General Eric Holder along with Housing and Urban Development (HUD) Secretary Shaun Donovan, Securities and Exchange Commission (SEC) Director of Enforcement Robert Khuzami and New York Attorney General Eric Schneiderman announced the formation of the Residential Mortgage-Backed Securities Working Group.  The working group will investigate those responsible for misconduct contributing to the financial crisis through the pooling and sale of residential mortgage-backed securities.

"This agreement addresses breakdowns in the mortgage servicing industry, and it clears the way for pursuing other mortgage-related misconduct," said Miller.

Scope of Settlement

This enforcement action targets one segment of the nation's vast and complex mortgage market, the Held for Investment (HFI) market, which encompasses loans held by the banks for the foreseeable future or maturity.  The U.S. Department of Housing and Urban Development (HUD) estimates that HFI mortgages comprise about 20 percent of the U.S. mortgage market.

"While this settlement provides significant relief for Iowa borrowers, it also puts in place new protections for homeowners in the form of mortgage servicing standards," Miller said.  "That's not something we'd see if we simply won a money judgment in a trial."

The final agreement, through a series of consent judgments, will be filed in U.S. District Court in Washington, and will have the authority of a court order.  The agreements are expected to be filed later this month.

Because of the complexity of the mortgage market and this agreement, which will span a three year period, borrowers in some cases may be contacted directly by one of the five included mortgage servicers regarding loan modification offers, may be contacted by a settlement administrator or their state attorney general, or may need to contact their mortgage servicer to obtain more information about specific programs and whether their loan qualifies.  More information will be made available as the settlement programs are implemented.

For more information on the proposed agreement:





Bank of America: 1-877-488-7814

Citi: 1-866-272-4749

Chase: 1-866-372-6901

Ally: 1-800-766-4622

Wells Fargo: 1-800-288-3212

Excerpt from President Barack Obama's comments about the deal:

Under the terms of this settlement, America's biggest banks -- banks that were rescued by taxpayer dollars -- will be required to right these wrongs.  That means more than just paying a fee.  These banks will put billions of dollars towards relief for families across the nation.  They'll provide refinancing for borrowers that are stuck in high interest rate mortgages.  They'll reduce loans for families who owe more on their homes than they're worth.  And they will deliver some measure of justice for families that have already been victims of abusive practices.

All told, this isn't just good for those families -- it's good for their neighborhoods, it's good for their communities, and it's good for our economy.

This settlement also protects our ability to further investigate the practices that caused this mess.  And this is important.  The mortgage fraud task force I announced in my State of the Union address retains its full authority to aggressively investigate the packaging and selling of risky mortgages that led to this crisis.  This investigation is already well underway.  And working closely with state attorneys general, we're going to keep at it until we hold those who broke the law fully accountable.

Now, I want to be clear.  No compensation, no amount of money, no measure of justice is enough to make it right for a family who's had their piece of the American Dream wrongly taken from them.  And no action, no matter how meaningful, is going to, by itself, entirely heal the housing market.  But this settlement is a start.  And we're going to make sure that the banks live up to their end of the bargain.  If they don't, we've set up an independent inspector, a monitor, that has the power to make sure they pay exactly what they agreed to pay, plus a penalty if they fail to act in accordance with this agreement.  So this will be a big help.

Of course, even with this settlement, there's still millions of responsible homeowners who are out there doing their best.  And they need us to do more to help them get back on their feet. We've still got to stoke the fires of our economic recovery.  So now is not the time to pull back.

To build on this settlement, Congress still needs to send me the bill I've proposed that gives every responsible homeowner in America the chance to refinance their mortgage and save about $3,000 a year.  It would help millions of homeowners who make their payments on time save hundreds of dollars a month, and it can broaden the impact building off this settlement.

That's money that can be put back into the homes of those folks who are saving money on the refinancing, helping to build their equity back up.  They may decide to spend that money on local businesses.  Either way, it's good for families, and it's good for our economy.  But it's only going to happen if Congress musters the will to act.  And I ask every American to raise your voice and demand that they do.

Excerpt from comments by U.S. Housing and Urban Development Secretary Shaun Donovan:

"This historic settlement will provide immediate relief to homeowners - forcing banks to reduce the principal balance on many loans, refinance loans for underwater borrowers, and pay billions of dollars to states and consumers," said HUD Secretary Donovan. " Banks must follow the laws.  Any bank that hasn't done so should be held accountable and should take prompt action to correct its mistakes.  And it will not end with this settlement.  One of the most important ways this settlement helps homeowners is that it forces the banks to clean up their acts and fix the problems uncovered during our investigations.  And it does that by committing them to major reforms in how they service mortgage loans.  These new customer service standards are in keeping with the Homeowners Bill of Rights recently announced by President Obama - a single, straightforward set of commonsense rules that families can count on."

Here's how much each major lender will have to pay:

Bank of America will pay the most to borrowers as part of the deal - nearly $8.6 billion. Wells Fargo will pay about $4.3 billion, JPMorgan Chase roughly $4.2 billion. Citigroup will pay about $1.8 billion and Ally Financial will pay $200 million. Those totals do not include $5.5 billion that the banks will reimburse federal and state governments for money spent on improper foreclosures.

The deal also ends a separate investigation into Bank of America and Countrywide for inflating appraisals of loans from 2003 through most of 2009. Bank of America acquired Countrywide in 2008.

"The settlement includes far reaching relief that will help many of our customers and complement our already extensive efforts to improve our borrower assistance efforts and servicing processes," JPMorgan Chase said in a statement.

Under the deal, banks must make foreclosure their last resort. They are also barred from foreclosing on a homeowner who is being considered for a loan modification. [...]

New York and California came on board late Wednesday. California has more than 2 million "underwater" borrowers, whose homes are worth less than their mortgages. New York has some 118,000 homeowners who are underwater.

New York Attorney General Eric Schneiderman made headlines last summer when he withdrew from the state attorneys general working group because, in his view, the settlement terms were too favorable to the banks. But last month President Obama put Schneiderman in charge of a new Residential Mortgage-Backed Securities Working Group. I saw Schneiderman on MSNBC's Rachel Maddow show last night defending the settlement as a "down payment" that would not prevent further investigation and prosecution of wrongdoing by major lenders. Here's an excerpt from Schneiderman's February 9 press release:

NEW YORK - Winning his long, persistent demand that a wide array of sweeping civil and criminal claims not be released without investigation, Attorney General Eric T. Schneiderman announced today a $136 million settlement for New York with the nation's five largest mortgage servicers over foreclosure abuses, the most per "underwater" borrower of any state in the nation, and the fourth highest dollar amount nationwide as part of the federal-state settlement. In addition to penalties for past abuses, the settlement includes direct relief to victims of wrongful foreclosure conduct, loan modifications including principal reductions for struggling homeowners, and funds that can be used to support foreclosure legal assistance and housing counseling programs. Today's settlement, which also imposes strong national standards for mortgage servicing, fulfills Attorney General Schneiderman's demand that he retain the right to bring legal action over misconduct that has not yet been investigated, a right that was absent from earlier settlement proposals.

"Thanks to the advocacy and support of Americans across the country, we have preserved the right to continue investigating the misconduct that led to the bubble and crash of the housing market. For a year, the proposed settlement was simply inadequate, and I applaud all those who fought with us to hold banks accountable for their role in the foreclosure crisis, provide meaningful relief to New York's struggling homeowners, and allow a full airing of the facts to ensure that abuses of this scale never happen again," said Attorney General Schneiderman. "On multiple fronts, we will continue to investigate the mortgage crisis that has impacted communities in every corner of this state, and ensure that justice and accountability prevail."  

Over the past year, Attorney General Schneiderman fought for a fair national settlement, on behalf of New York's homeowners, for mortgage servicing abuses, making it clear that he would not sign an agreement that would give financial institutions broad legal immunity for conduct that had not been investigated. Until recently, the language in settlement proposals had been too broad to justify reaching an agreement. Today's settlement is a vast improvement, and it will allow the Office of the Attorney General and other agencies to investigate and bring appropriate civil and criminal actions.

New York's estimated share of the guaranteed cash payments in the settlement is $136 million, the fourth highest in the nation. New York will be able to distribute these funds to legal aid, homeowner assistance and advocacy organizations to help distressed individuals facing foreclosure or servicer abuse.

Among the critical legal claims Attorney General Schneiderman fought for, and successfully preserved in today's settlement are:

All criminal claims.

All claims based on mortgage securitization misconduct, under securities fraud statutes, including New York's Martin Act, and other sources of law. This includes securitization claims based on servicing, foreclosure or origination-related facts.

All claims directly against the private national mortgage electronic registry system known as MERS, as well as claims against financial institutions for the use of MERS in the Attorney General's recently filed lawsuit over a wide range of deceptive and fraudulent practices in New York.

All claims for violations of fair lending lawsthat relate to discriminatory practices in loan origination.

All tax claims, including any claim that the failure to transfer mortgage loans to the securitization trusts or other conduct violated tax rules.

All claims by counties for lost mortgage recording fees; and

All claims and defenses held by private and third parties, including those held by individual mortgage loan borrowers. [...]

Today's settlement preserves the legal authority of the Schneiderman-led Residential Mortgage-Backed Securities Working Group announced by President Obama in the State of the Union address. This joint investigation brings together the Department of Justice (DOJ), several state law enforcement officials, and other federal agencies to investigate those responsible for misconduct contributing to the financial crisis through the pooling and sale of residential mortgage-backed securities. It builds upon ongoing state and federal investigations, while also launching new ones.

The new working group includes hundreds of staff, including an initial commitment of 55 Department of Justice attorneys, in addition to analysts, agents and investigators. As it begins its work, 15 federal prosecutors - civil and criminal - and 10 FBI agents and analysts will be initially assigned to the working group. An additional 30 attorneys, investigators and other staff from U.S. Attorneys' Offices around the country will join the working group's efforts, in addition to existing state and federal investigations into similar misconduct under those authorities.

Yves Smith has written extensively about the mortgage settlement negotiations at the Naked Capitalism blog. Here's an excerpt from her "Top Twelve Reasons Why You Should Hate the Mortgage Settlement":

1. We've now set a price for forgeries and fabricating documents. It's $2000 per loan. This is a rounding error compared to the chain of title problem these systematic practices were designed to circumvent. The cost is also trivial in comparison to the average loan, which is roughly $180k, so the settlement represents about 1% of loan balances. It is less than the price of the title insurance that banks failed to get when they transferred the loans to the trust. It is a fraction of the cost of the legal expenses when foreclosures are challenged. It's a great deal for the banks because no one is at any of the servicers going to jail for forgery and the banks have set the upper bound of the cost of riding roughshod over 300 years of real estate law.

2. That $26 billion is actually $5 billion of bank money and the rest is your money. The mortgage principal writedowns are guaranteed to come almost entirely from securitized loans, which means from investors, which in turn means taxpayers via Fannie and Freddie, pension funds, insurers, and 401 (k)s. Refis of performing loans also reduce income to those very same investors.

3. That $5 billion divided among the big banks wouldn't even represent a significant quarterly hit. Freddie and Fannie putbacks to the major banks have been running at that level each quarter.

4. That $20 billion actually makes bank second liens sounder, so this deal is a stealth bailout that strengthens bank balance sheets at the expense of the broader public.

5. The enforcement is a joke. The first layer of supervision is the banks reporting on themselves. The framework is similar to that of the OCC consent decrees implemented last year, which Adam Levitin and yours truly, among others, decried as regulatory theater. [...]

9. There is plenty of evidence of widespread abuses that appear not to be on the attorney generals' or media's radar, such as servicer driven foreclosures and looting of investors' funds via impermissible and inflated charges. While no serious probe was undertaken, even the limited or peripheral investigations show massive failures (60% of documents had errors in AGs/Fed's pathetically small sample). Similarly, the US Trustee's office found widespread evidence of significant servicer errors in bankruptcy-related filings, such as inflated and bogus fees, and even substantial, completely made up charges. Yet the services and banks will suffer no real consequences for these abuses.

10. A deal on robosiginging serves to cover up the much deeper chain of title problem. And don't get too excited about the New York, Massachusetts, and Delaware MERS suits. They put pressure on banks to clean up this monstrous mess only if the AGs go through to trial and get tough penalties. The banks will want to settle their way out of that too. And even if these cases do go to trial and produce significant victories for the AGs, they still do not address the problem of failures to transfer notes correctly.

Statement from Iowa Citizens for Community Improvement, February 9:

AG Settlement is a Drop in the Bucket

Massive principal reduction beyond the scope of Miller's settlement is needed to reset the housing market, stabilize economy

On Thursday morning, Iowa Attorney General Tom Miller announced the details of a nationwide settlement into the mortgage and foreclosure practices of the largest mortgage servicers in the country, but CCI members say it's not enough.

"Compared to the housing crisis we're in right now, this is a drop in the bucket," said Iowa CCI Executive Director Hugh Espey. "When we met with Miller over a year ago, he promised a fundamental transformation of the mortgage industry. We expected him to knock this settlement out of the park, but it looks like he just struck out."

Espey pointed to the nearly $700 billion in underwater mortgages across the country and continually falling housing prices as two serious problems facing the economy that this settlement does not address.

"Trust in homeownership is eroding, and we need to reset the housing market if we want to stabilize the economy," Espey said, "This settlement does not fix the bigger picture."

Despite its flaws, the settlement announced today is stronger than it would have otherwise been because of pressure from grassroots groups across the country.  Everyday people have fought hard for a settlement that did not release the banks from future lawsuits for fraudulent activity.

CCI members vowed to continue fighting. The Obama Administration needs to make sure that its recently announced task force led by New York AG Eric Schneiderman goes the distance and delivers at least $336 billion in principal reduction on underwater mortgages.

Excerpt from David Dayen, The $2,000 Insult in the Foreclosure Fraud Settlement:

I mean, even Lorne Michaels offered the Beatles $3,000 to reunite. We're talking about the token of tokens. That's the bare minimum you would expect to recover for families in any Fair Debt Collection Practices case. It borders on insult. "We stole your home, enjoy the couple months rent." I haven't seen one individual, in all the positive comments about the settlement, try to defend that.

I'm aware of the notion that this deal represents a "down payment". But I don't think anyone is saying it's a down payment for those foreclosure victims. People were sold fraudulent mortgages and kicked out of their homes with fraudulent documents. In any criminal case the suspect would be let out of jail based on such prosecutorial negligence. Instead, these people are getting $2,000 and a pat on the head. And they're only getting it if they sign up expeditiously, so we can expect the clerical errors holding up the payments. [...]

The good news is that borrowers do not release claims in exchange for a payment. The bad news is that they have had their financial lives ruined and cannot exactly afford the legal team to actually act on those claims. The money paid directly to states in the settlement could go to legal aid, but it also could go to fill some budget hole.

From a post by Robert Borosage at the Campaign for America's Future:

But the deal should be seen for what it is - a relatively small ante by the banks handed out before the real cards are seen. [...]

The banks are looking for a deal that will relieve them of untold criminal and civil liabilities. Untold is the right word because, outrageously, there has been no real investigation into the scope of their crimes. The state attorneys general simply don't have the resources. The federal government does, but once the administration decided to continue Bush's policies of bailing out the banks without reorganizing them, it has been committed to keeping insolvent banks afloat, not holding them accountable.


The deal has been cut before the investigation so it is suspect on its face, but limited in its scope. Whether it will be enforced adequately remains to be seen. How homeowners benefit will differ from state to state.

But the real question remains whether the federal investigation will finally turn over all the cards so we know just how bad a hand the banks are holding. Only then is there a possibility for real accountability - and real relief for homeowners.

This post at CNN includes some criticism of the deal from the right:

The conservative case against the deal was voiced most clearly by Oklahoma Attorney General Scott Pruitt, the only state attorney general who didn't sign onto the deal. He blamed President Obama for using the settlement to try to "fundamentally restructure the mortgage industry."

Pruitt argues that it's unfair that those who are both underwater and delinquent on their loans can apply to reduce the amount they owe. Meanwhile, underwater homeowners who are current in their payments can only refinance their existing loan at a lower interest rate.

He said that could encourage more homeowners to default on their loans so they could benefit from the settlement.

Other critics of the Obama administration said the fact that the settlement will be able to help only a small percentage of troubled homeowners raises other questions about fairness.

"Certain favored borrowers will be receiving a bailout while everyone else's home values will stay underwater," said Bill Wilson, president of Americans for Limited Government. "The impact will be minimal, so the question becomes, who's getting a bailout and what makes them so special?"

  • Tom Miller is an embarassment.

    He promised to put people in jail at the beginnning of this investigation.  Then he did no investigating.

    Bill Black's accounting of what DOJ failed to do also applies to Miller.  The focus on DOJ is because it has been apparent that Miller isn't even in charge, and the DOJ and Shaun Donovan are. But here is what you can measure all of them against:

    Let us count the ways DOJ has typically failed to pursue leads against the elite officers whose frauds drove this crisis: they have not used grand juries, they have not issued civil subpoenas, they have not used electronic surveillance, they have not used undercover investigators, they have not "wired" cooperating witnesses who they have "flipped", they have not appealed for whistleblowers to come forward, they have not called elite witnesses before grand juries, they have not convened grand juries, they have not sent FBI agents to their homes or offices to conduct formal interviews, they have not retained expert witnesses or consultants with expertise in accounting control fraud, they have not demanded that the banking regulatory agencies produce high quality criminal referrals, they have not asked those agencies to "detail" examiners and other skilled staff to the FBI to serve as internal experts, they have not trained AUSAs, special agents, and banking regulators in how to detect, investigate and prosecute accounting control frauds, they have not prosecuted where other federal agencies, after investigation, have charged that financial elites committed fraud, and they have not flipped intermediate officers and gone up the chain of command, they have not assigned remotely adequate staff to investigate and prosecute frauds, they have not assigned any meaningful number of their staff to investigate the elite frauds, and they have not made strong, consistent demands that Congress fund adequate staff to end the ability of financial elites to commit fraud with impunity. Conversely, DOJ has assigned its inadequate staff almost exclusively to non-elite mortgage fraud, has formed a "partnership" with the Mortgage Bankers Association (MBA) - the trade association of the "perps", and has adopted the MBA's absurd "definition" of mortgage fraud that implicitly defines accounting control fraud out of existence. How does Holder expect to get "leads" against elite frauds when he gets no criminal referrals from the banking regulatory agencies, "defines" the leading fraud perpetrators of mortgage fraud as the "victim" of mortgage fraud, conducts no credible investigation of elite frauds, takes no proactive steps to investigate (e.g., using undercover FBI investigations), makes no plea for whistleblowers to come forward with evidence on the elite frauds, and provides training for regulators, FBI agents, and AUSAs that implicitly denies the existence of accounting control fraud? I understand that he inherited a disaster and a disgrace from his predecessor, but he has made it worse.

    Collectively, the Bush and Obama administration have provided de facto impunity from the criminal laws for our largest financial firms and their elite officers who drove our crisis.

  • Yves Smith on Democracy Now

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