$26 billion mortgage settlement: too little, too late. President Barack Obama: Wall Street’s man in government?

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Cenk Uygur:  Today a giant mortgage settlement was announced for $26 billion.  But it has a lot of downsides to it, which we will tell you about in a second.  49 of the 50 attorney generals across the country have signed onto it.  Only the goof ball in Oklahoma, Attorney General Scott Pruitt, because he thought that the banks did nothing wrong.  I know, that’s why the banks always give you $26 billion when they did nothing wrong.  I guess he’s looking forward to making some money as a lobbyist later, that sellout, who screwed over the people of Oklahoma. 

As far as whether it’s a good deal or not, the President is convinced that it is a good one.  Let’s listen to him: 

President Barack Obama:  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 are going to make sure that the banks live up to their end of the bargain.  

Cenk Uygur:  Alright, I hope that is the case.  And he’s right:  it is a start, and it definitely has some good sides, which we are going to point out in a second.  Now one of the things that the President is pointing out is, hey, don’t forget, we can still go after the banks for other things that they have done wrong: 

President Barack Obama:  This settlement also protects our ability to further investigate the practices that caused this mess, and this is important.  The Mortgage Fraud Taskforce that 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.  

Cenk Uygur:  Alright, now that is good.  Now unfortunately let me share some of the bad stuff with you and I will come back to some of the positive moments here. 

There are 11 million homes underwater now, which means that they owe more money than the house is worth.  That’s a ton.  In this case, only 1 million will get aid, obviously not a great percentage.  

And for current homeowner relief, we are going to get $17 million in principal reductions.  Now that’s, of course, very helpful to the people who will get that aid.  But unfortunately negative equity in houses is $700 billion, meaning that’s how much more people owe than their homes are worth, so again, you see a giant disparity there, and one that is going to be hard to overcome. 

American homeowners are underwater on average by $50 thousand.  Now the average underwater here is going to get paid $20 thousand.  Of the ones who do get paid here will only get $20 thousand worth of help.  Now that is for the people who still have their houses.  

But a lot have already been foreclosed on.  In fact, in the last five years, 4 million homes have been foreclosed on.  But of those, only 750 thousand people will get help, so a great majority will not.  And of that three-quarter of a million people, they will get anywhere between $1,800 to $2,000.  And if you lost your home, getting $2,000 is not a great settlement for you:  it hurts very much. 

Now some of the upsides are fraud cases in New York will be preserved against the banks, we can still sue under the false claims act in California, there will be a federal mortgage investigation that continues as the President explained, secularization claims, tax fraud claims, insurance fraud claims, can still be brought by the attorney generals of the different states, and individual homeowners can sue. 

So there are still a lot of options for us.  Unfortunately the statute of limitations has run on some of those, and that’s why the banks, and, unfortunately, Tim Geithner, who helps the banks, dragged this out for so long so that we couldn’t bring some of the strongest cases.  That’s why Tim Geithner is known on Wall Street as “our man in government”. 

One other person who shares some of these concerns is Cynthia Kouril, who is a former Special Assistant U.S. Attorney, and she wrote about this: 

“The court system will be permanently corrupted by forged and perjurious documents…This settlement is an incredible breach of social contract between the government and the governed.” 

So as you can tell, it really has some upsides and it has some downsides; it’s a tough bill to swallow for a lot of homeowners who will get no help from it.  On the other hand, we got something from the banks.  Let me bring in a reporter who has been covering this, Janelle Ross, a business reporter for the Huffington Post, to get a little bit more detail here. 

You wrote about a family that experienced foreclosure and how the banks strung them along.   I thought it was such an interesting case because so often in the media you hear people, the anchors, saying that these people were irresponsible and they had it coming.  But that is not always the case, is it? 

Janell Ross:  That’s true, definitely.  The family that I wrote about today, the Zapatas, who lived near West Palm Beach, Florida, certainly had enough income to afford the house that they purchased.  They were a family with savings before this crisis began.  So I don’t think that they would meet many of the typical criteria for a “irresponsible buyer”. 

Cenk Uygur:  So what did the people in the bank that held their mortgage do to them that was so egregrious that leads you to believe that maybe the bank did not have good intentions?

Janell Ross:  I’ll use the words of Monica Zapata.  What she told me about her experiences, that the bank that was managing, or as they say in the business, “servicing”, her loan, meaning that they were taking in her payment and also were in the position to approve a mortgage modification when the family ran into unforseeable financial troubles:  the economy declined, Mr. Zapata’s business began to fall apart, as you can imagine their income changed.  She immediately contacted her bank and asked for a change in terms. 

She filled out a forty page application.  That application sat with GMAC, in this case which later became Ally Financial, for about nine months.  And then she received notice that they were going to foreclose all the while she was checking in with the bank every two weeks, and she was being told that they were carefully considering her application, there were no hints at all, as she told me, that it was unlikely that this was going to be approved.

And she gets notice of foreclosure, and she goes to seek help from a nonprofit organization that works with a lot of homeowners facing the similar situation around the country , and they are encouraged to submit a second request for a mortgage modification, this time about fifty pages worth of documents, which they did two weeks before a deadline that was set by the bank. 

They submitted the application, received confirmation that the application has been received according to Mrs. Zapata, and a few weeks later were informed by GMAC that the mortgage modification was not received on time so the case had been closed, and there would be no modification made.  And GMAC moved to foreclose on this family.

Most remarkably, it seems that there was some effort, or perhaps some reason…one part of the foreclosure process in Florida requires lenders or servicers to sit down at a mediation session, a formal discussion with the borrower, to try to work out a last attempt at a deal, to try to keep the family in their home, or at least avoid a foreclosure where they have to get out quickly.  And that date kept being pushed back for this family to the point where they got to their final date, August 3rd, they were told that they would have to pay for the mediation session, which is not true. 

Under Florida law, the bank was supposed to pay for this session.  And as you can imagine, this family facing a serious financial crisis couldn’t afford to pay $400 an hour to sit down and talk with their servicer.   And the servicer sold their house on the very day of the scheduled mediation.

Cenk Uygur:  Right.  Janell, I’ll put it easier.  They got hosed.  They got screwed.  They got hoodwinked.  They did everything right, they submitted all the applications, they went to mediation, and the bank said, yeah, alright, we’re going to take care of it.  And the minute they could, they foreclosed on their house without asking them and going through the proper channels. 

And now what do they get.  They get a check for maybe $1,800 to $2,000 after they lost their $500,000 house.  It drives me crazy.  It was a great story.  Janell Ross from the Huffington Post, thank you so much for joining us.  We really appreciate it.

Janell Ross:  Thank you.

Cenk Uygur:  Let me say one more thing about this settlement.  Bank of America had already agreed to pay $8.5 billion.  And now that gets wiped out.  And $20 billion of this settlement doesn’t actually come from the banks; it comes from investors.  And guess who the investors are?  They are the people that the mortgages eventually went to Freddie Mac and Fannie Mae.  Guess who’s paying the bills of Freddie Mac and Fannie Mae?  Us, the taxpayers. 

God, this is frustrating!  We get a little bit of good news.  Overall there’s still a mountain of bad news here.  And this settlement here got some good parts but it’s got a lot of questionable parts, as you can see the devil is in the details.

About William Brighenti

William Brighenti is a Certified Public Accountant, Certified QuickBooks ProAdvisor, and Certified Business Valuation Analyst. Bill began his career in public accounting in 1979. Since then he has worked at various public accounting firms throughout Connecticut. Bill received a Master of Science in Professional Accounting degree from the University of Hartford, after attending the University of Connecticut and Central Connecticut State University for his Bachelor of Arts and Master of Arts degrees. He subsequently attended Purdue University for doctoral studies in Accounting and Quantitative Methods in Business. Bill has instructed graduate and undergraduate courses in Accounting, Auditing, and other subjects at the University of Hartford, Central Connecticut State University, Hartford State Technical College, and Purdue University. He also taught GMAT and CPA Exam Review Classes at the Stanley H. Kaplan Educational Center and at Person-Wolinsky, and is certified to teach trade-related subjects at Connecticut Vocational Technical Schools. His articles on tax and accounting have been published in several professional journals throughout the country as well as on several accounting websites. William was born and raised in New Britain, Connecticut, and served on the City's Board of Finance and Taxation as well as its City Plan Commission. In addition to the blog, Accounting and Taxes Simplified, Bill writes a blog, "The Barefoot Accountant", for the Accounting Web, a Sift Media publication.
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One Response to $26 billion mortgage settlement: too little, too late. President Barack Obama: Wall Street’s man in government?

  1. I contacted Janell Ross to interview her on this story. I am seeking certain evidence to substantiate the events purported by Mrs. Zapata, specifically, the form of confirmation received from the bank evidencing that the second application was received on time, any bank document requiring the Zapata’s to pay $400 per hour for mediation, the terms of modification of the mortgage proposed by the Zapatas in relation to the market value of the originally-valued $500,000 home, as evidenced in the sale on August 3rd, etc. What appears to be missing in this account of Mrs. Zapata’s attempt to modify her mortgage are the details of her offer to the bank. Was the offer credible based on the facts? Was the offer reasonable in light of current market conditions?

    I wonder if the American people are likely to feel more sympathetic to families losing their $100,000 or $200,000 homes than to those losing their $500,000 or $5,000,000 homes to banks.

    Yes, Cenk, the devil is in the details. In my opinion more details on the Zapata’s story are needed.

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