Too Big to Fail and Too Big to be Accountable: Banks Continue to Usurp the Law with a Mortgage Settlement

On February 9, 2012, five of the nation’s largest banks struck a settlement with federal officials and 49 state attorney’s general (Oklahoma excluded).  Under the agreement, Wells Fargo, JP Morgan Chase, Citi, Ally (formerly GMAC), and Bank of America will pay $25 billion to be spared further state or federal lawsuits regarding abusive and negligent foreclosure practices.  Included in those practices is the robo-signing issue, where mortgage companies signed false affidavits in order to speed up the foreclosure process.  The agreement does not cover the mortgages backed by quasi-government agencies Fannie Mae and Freddie Mac, which accounts for more than 50% of the nation’s current loans.

Who Gets Help?

Massachusetts’ estimated share of the settlement is $318 million, including: approximately $14 million in cash to Massachusetts borrowers; $257 million in mortgage relief, such as term modifications and refinancing; and about $46 million to the state for assisting homeowners.

Currently, 1 in 4 homeowners nationwide are underwater and approximately 4 million families have already been foreclosed on.  Under the agreement, most of the settlement money will go to reduce balances for approximately one million families who owe more on their homes than they are worth and are delinquent on their payments.  Some who are current but underwater could be allowed to refinance at a lower value.  The smallest amount of the settlement will go to those families already foreclosed on.  Because robo-signing or other false documents may have been behind their foreclosures, some 750,000 families who lost their homes between 2008 and 2011 could qualify for settlement payments of $1,500-$2,000, a token amount which would barely cover a month’s rent in most areas.

Who Wins?

While the settlement covers some illegal acts by the banks in foreclosing on families throughout the nation, the deal does not completely spare the banks from litigation.  Massachusetts Attorney General Martha Coakley, who has been one of the more outspoken attorneys general during the negotiations, reserved the state’s claims related to Mortgage Electronic Registration Systems, Inc. (MERS), and “Ibanez” claims.  However, despite the fact that the nation’s five largest banks made $46 billion in profits last year, they will only have to pay a combined $5 billion in cash.

The bottom line is that the banks have paid off the nation’s attorneys general to drop their lawsuits, leaving families across America grappling with the foreclosure mess the banks created.  In the end, the banks win, again.  By agreeing to what amounts to a legislative program, the banks have escaped the judicial process and any real opportunity to provide redress and prevent violations in the future.

In the meantime, something is better than nothing.  Borrowers are being advised to contact their mortgage servicer to obtain more information about specific loan modification programs and whether they qualify under the terms of the settlement.

Mass. AG’s dedicated mortgage settlement phone line – 617-963-2170

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