It took more than a year to strike a deal, but here it is, the biggest government-industry settlement in history, surpassing even big tobacco.
Five of the nation’s largest servicers will cough up more than $25 billion, the bulk of which will go toward lowering mortgage principal for borrowers who are behind on their mortgage payments.
Wait a minute.
What does that have to do with faulty foreclosure documents? Nothing.
But that’s how it started, and now that government got what it wanted, i.e. mortgage principal reduction for about a million borrowers, they are likely, quietly whispering a big thank you to all those so-called “robo-signers.”
Let’s take a step back for a second to remember the fall of 2010, when “robo-signing” came to light. The idea that one low-paid guy sitting in a room was signing his, or perhaps somebody else’s, name to thousands of foreclosure documents was appalling. It is appalling, no question. But let us not forget that the vast, vast majority of those foreclosures being processed were in fact legitimate foreclosures; it was the documentation process that was fraudulent. Banks didn’t foreclose on borrowers for no reason, they foreclosed because borrowers weren’t paying their mortgages.
So fast-forward to 2011 when the housing market is still in deep despair. Home prices are still falling, eleven million borrowers owe more on their mortgages than their homes are worth, home construction sees its worst year ever, and government relief programs are doing very little to help. Cries arise that the only way to help housing is to reduce the principal on all those underwater mortgages, give borrowers their equity back! But how does government force the banks to do that? Robo.
The last thing the banks need are fifty state lawsuits over bad foreclosure documents, plus they need to be able to get all these legitimate foreclosures through the courts, so they can stem some losses by reselling the homes. The “robo” scandal has ground foreclosure processing to a veritable halt in much of the county and slowed it everywhere else. Borrowers are sitting in their homes paying nothing. So the banks agree to the deal, any deal, because they have no other choice.
You can hear it in their statements today:
“We believe this settlement will help provide additional support for homeowners who need assistance, brings more certainty to the housing market and aligns to our ongoing commitment to help rebuild our neighborhoods and get the housing market back on track.” -- Bank of America
“Today’s agreement represents a very important step toward restoring confidence in mortgage servicing and stability in the housing market.” -- Wells Fargo Home Mortgage.
Getting the housing market back on track. Restoring stability in the housing market. That’s what they want. They’ve already stopped “robo-signing” long ago. Now what they need is closure. Move the foreclosure process along again, so that the housing market can clear all the distress and move ahead. Let the bank black eye begin to heal. Sure, they will get hit with plenty more lawsuits over mortgage securitizations, but that has little to do with their customers on the street, the average consumers. That has to do with investors, and federal regulators and all kinds of complicated Wall Street products that are lost on average Americans. Robo-signing was more personal; it had to do with real people’s mortgage papers that they signed at their kitchen tables.
Robo-signing was wrong. No question.
The banks acted recklessly.
But the result is that about a million borrowers, many of whom also acted recklessly, are going to get a financial windfall in the form of up to $20,000 in mortgage principal forgiveness. Yes, that will help some of them stay in their homes and prevent some new foreclosures. For the rest of us who didn’t buy more house than we could afford, who didn’t use our homes as ATM machines just because some random mortgage broker said we could, who decided that we should put a down payment on our single largest investment, and who are still mailing in the mortgage check every month despite the home equity we’ve lost, we get nothing.
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