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February 13, 2012

Too Little, Too Late

Michael Kurtianyk

Last week, the five largest providers – JPMorgan Chase, Citigroup, Ally Financial, Wells Fargo and Bank of America – agreed on a deal with 49 states (not Oklahoma) to settle charges of “abusive and negligent” foreclosure practices dating back to 2008.


The banks will commit $26 billion to help underwater homeowners and compensate those who lost their homes due to improper foreclosure practices.


Loans owned by Fannie Mae or Freddie Mac are not impacted by this settlement. This settlement doesn’t help if a homeowner has a mortgage owned or guaranteed by Fannie Mae and Freddie Mac.


The state will receive about $960 million as part of this settlement, according to Maryland Attorney General Doug Gansler.


Why didn’t Oklahoma participate in this? It turns out that Attorney General Scott Pruitt, a Republican, said that he was enforcing state law. "It is not to be leveraged as part of an overall coalition and allow there to be a restructuring of the regulatory market or the housing market in this country," Pruitt said.


What Mr. Pruitt ended up doing was negotiate the same amount of money by having its own individual settlement with the five banks that it would have received under the agreement with all of the other states. So long as the settlement money doesn’t get bogged down by bureaucracy, Oklahoma’s money will be distributed to homeowners who were the affected by wrongful conduct such as "robo-signing" and "dual tracking."


Robo-signing occurs when the mortgage companies signed the foreclosure documents by using a computer. This wouldn’t be so bad except that the documents needed a human being to verify that the information on them was accurate.


Dual-track occurs when homeowners are told they are on track to modify their home loan to avoid foreclosure while at the same time the bank has them on a separate track to foreclose. This process is purposely misleading and unfair to mortgagees. Borrowers, who are accepted for a loan modification and make payments on time, can still find themselves foreclosed upon under this dual-track system, sometimes without their knowledge until it’s too late.


This foreclosure settlement would be fine except that it won’t make a dent in the coffers of the five banks. Why? The $26 billion to be paid out by the banks is broken down as follows: roughly $17 billion is for credits for loan modifications, which will come largely from mortgages owned by investors; $3 billion is for refinances, and only $5 billion will be in the form of hard cash payments, including the $2,000 per borrower foreclosed on between September 2008 and December 2011.


This limited scope of reimbursement, and the small amount of money to be doled out, means that this “settlement” is barely a slap on the wrist. A criminal investigation should have been launched into the bad business practices of these five banks. The mortgages were fraudulently originated. How can a computer-generated signature be sufficient means of approving best business practices?


The bottom line is this. Though some families will be helped by this settlement by being given a pittance, there are still many more who still face foreclosure or who owe the bank far more than their home is worth. This settlement isn’t enough to police the fraudulent practices of banks.

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