So how bad is the 49 state AGs' settlement with the top mortgage lenders? Depends who you ask

New York's Eric Schneiderman and California's Kamala Harris, two among the small group of state AGs who held out for a better settlement with the mortgage lenders, are putting a happy face on the deal announced this morning. For Schneiderman's thoughts, see below.


"My mistake in looking at this deal a few weeks ago, when details of it first leaked out, was in focusing on how much worse it could have been, instead of thinking about how bad it still is. . . . [A]bout the only part of the deal we can be absolutely sure will be honored in full is the liability waiver for the robosigning offenses."

-- Matt Taibbi, in a Taibblog post today, "Why
the Foreclosure Deal May Not Be So Hot After All"

"Sometimes people on the left have to take yes for an answer. The president is accepting the challenge. It's time for progressives to say, 'Okay, he's moving with us now, he's using resources of government to aggressively pursue the malefactors of great wealth,' as Teddy Roosevelt put it."

-- NYS AG Eric Schneiderman, in an interview this
afternoon with washingtonpost.com's Greg Sargent

by Ken

Having reported myself that Matt Taibbi was declaring himself "almost optimistic" based on what he was hearing about the impending settlement with the country's top mortgage lenders agreed to by 49 of the 50 state attorneys general (the holdout: Oklahoma's AG; I guess everything's just hunky-dory mortgage-wise in the Sooner State), I feel obliged to report that Matt, with a couple of weeks to think about it and with the details of the settlement now at hand, isn't feeling so optimistic. What he's feeling now, he says in a blogpost today ("Why the Foreclosure Deal May Not Be So Hot After All") is "pretty queasy."

A few weeks back, I was optimistic about [the settlement] -- I had been worried that it was going to contain broad liability waivers for all sorts of activities, and I was pleasantly surprised when I heard that its scope had essentially been narrowed to robosigning offenses.

However, now that the settlement is finalized, and I've had time to think about it and talk to people who know far more than I do about this, I'm feeling pretty queasy.

It feels an awful lot like what happened here is the nation's criminal justice honchos collectively realized that a thorough investigation of the problem would require resources they simply do not have, or are reluctant to deploy, and decided to accept a superficially face-saving peace offer rather than fight it out.

So they settled the case in a way that reads in headlines like it's a bite out of the banks, but in fact is barely even that. There will be little in the way of real compensation for stuggling homeowners, and there are serious issues in the area of the deal's enforceability. In fact, about the only part of the deal we can be absolutely sure will be honored in full is the liability waiver for the robosigning offenses.

"There will be little in the way of real compensation for stuggling homeowners," Matt writes, "and there are serious issues in the area of the deal's enforceability."

In fact, about the only part of the deal we can be absolutely sure will be honored in full is the liability waiver for the robosigning offenses.

With the rest of it -- collecting on the settlement, enforcement of the decrees, all the stuff put in there to balance the deal in the consumer's direction -- there will be an uphill battle from this point forward to get the banks to comply. The banks meanwhile have no such uphill battle. They will get the full benefit of the deal (a release from costly litigation) from the moment the ink is dry.

It looks, says Matt, like the state AGs --

just wilted before the prospect of a long, drawn-out conflict with an army of highly-paid, determined white-shoe banker lawyers. The message this sends is that if you commit crimes on a large enough scale, and have enough high-priced legal talent sitting at the negotiating table after you get caught, the government will ultimately back down, conceding the inferiority of its resources.

I think the best summation of the settlement is probably Yves Smith's, which can be found here. The piece lists the 12 things that suck the most about the settlement. The most painful is probably #12:

12. We'll now have to listen to banks and their sycophant defenders declaring victory despite being wrong on the law and the facts. They will proceed to marginalize and write off criticisms of the servicing practices that hurt homeowners and investors and are devastating communities. But the problems will fester and the housing market will continue to suffer. Investors in mortgage-backed securities, who know that services have been screwing them for years, will be hung out to dry and will likely never return to a private MBS market, since the problems won't ever be fixed. This settlement has not only revealed the residential mortgage market to be too big to fail, but puts it on long term, perhaps permanent, government life support.

My mistake in looking at this deal a few weeks ago, when details of it first leaked out, was in focusing on how much worse it could have been, instead of thinking about how bad it still is. The only acceptable foreclosure deal had to bring about a complete end to robosigning and the other similar corrupt practices that grew up around it (like for instance gutter service, the practice of process servers simply signing affidavits saying they delivered summonses, instead of really doing it).

But this deal not only doesn't end robosigning, it officially makes getting caught for it inexpensive. Shame on me for ever thinking that might be a good thing.

OTHER POINTS AMONG YVES SMITH'S "TOP
TWELVE REASONS WHY THIS DEAL STINKS"

(Note that Yves was writing based on information that had been leaked about the settlement, which was finally announced this morning. As far as I know, there were no great surprises in the official version.)

* "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."

* "That $26 billion is actually $5 billion of bank money and the rest is your money." And even 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."

* "If the new federal task force were intended to be serious, this deal would have not have been settled. You never settle before investigating." And "there is plenty of evidence of widespread abuses not that are 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."

NYS AG Eric Schneiderman's MERS electronic-registry-abuse suit is specifically excluded from the settlement, Yves Smith notes, but "Nevada's and Arizona's suits against Countrywide for violating its past consent decree on mortgage servicing has, in a new Orwellianism, been 'folded into' the settlement" -- a "cave-in" she calls "a special gift for Bank of America, who is by far the worst offender in the chain of title disaster."

"As we've said before," Yves writes, "this settlement is yet another raw demonstration of who wields power in America, and it isn't you and me."


SO WHAT DOES ERIC SCHNEIDERMAN SAY? GREG
SARGENT LOGGED AN INTERVIEW THIS AFTERNOON

In the Plum Line interview the NYS AG --

conceded the settment announced today was “small” in financial terms, given the struggles of underwater homeowners and people who lost their homes. But he insisted that time will show that today’s settlement was a win -- that it secured a framework that will ultimately result in a true accounting of the role big banks played in sparking the economic meltdown.

“This is a small step in an economy where we have $700 billion in negative equity, but it is a significant step,” Schneiderman said. . . . “This is a down payment towards the overall goal of accountability, meaningful relief for those injured by the meltdown, and getting the facts out so we can ensure that this never happens again.”

Schneiderman stressed that the settlement leaves "the conduct that led to the crash" as "fair game," saying he's "confident the releases are narrow enough so our investigation into misconduct should produce more significant relief going foward." He insisted that a wide array of government resources would bring the “full juristiction we need over all the different types of misconduct that contributed to the implosion of the economy.” He also insisted that he will "speak up" --

if I don’t feel that the rights of American homeowners are being protected and we’re not pursuing the investigation as aggressively as we should. If things break down and things don’t work I’m prepared to speak up and take action. But the initial signs are really positive.”

As for the president's commitment to genuine accountability, Schneiderman trusts his private as well as public assurances.

He took ownership of this. Sometimes people on the left have to take yes for an answer. The president is accepting the challenge. It's time for progressives to say, "Okay, he's moving with us now, he's using resources of government to aggressively pursue the malefactors of great wealth," as Teddy Roosevelt put it.

"Perhaps most interestingly," Greg writes, "Schneiderman said that the coalition of liberal, progressive and labor organizations that had come together to insist that the current settlement not let the banks off the hook would help force the task force to ultimately succeed." Schneiderman:

This will ultimately depend on the coalition that’s assembled around these principles. We’ve now got a progressive coalition that . . . can move public officials to take a more aggressive approach.

Meanwhile others of the "holdout" AGs, including California's Kamala Harris, Massachusetts's Martha Coakley, and Delaware's Beau Biden, were stressing benefits to their states' troubled mortgage holders which are included in the settlement, as well as the scope that remains for investigation and prosecution.

Over at Digby's Hullabaloo, David Atkins makes the case ("Attacking Schneiderman and Harris Is a Mistake") that even progressives disappointed with the settlement should exercise care in attacking the hardy AGs who fought to make it significantly better than it otherwise would have been.


CPC CO-CHAIRS RAÚL GRIJALVA AND KEITH ELLISON
TAKE BASICALLY THE SAME VIEW AS SCHNEIDERMAN

The state AGs inclined to continue the fight as well as the new federal task force co-chaired by Schneiderman can count on some support in Congress. Congressional Progressive Caucus co-chairs Raúl Grijalva and Keith Ellison issued this statement today calling for "Real Accountability in Wall Street Bank Settlement":

This settlement is a step towards restoring trust and transparency to an economic system that has catered to the big banks and taken away from the American people for far too long. We are encouraged by new bank requirements that will work to slow the pace of foreclosures and efforts to limit the scope of immunity offered to the banks. For some homeowners, thousands of dollars in compensation, a change in the principle amount owed, or an improved chance to refinance can make a world of difference.

This settlement alone is not enough and should be seen as a down payment on justice for homeowners harmed by illegal bank practices. When Wall Street bankers got bailed out, homeowners got kicked out. Now these banks are back to business as usual, coming up with new ways to cheat working Americans and paying out $144 billion in bonuses and compensation this year alone. Americans are fed up with Wall Street banks getting bailed out and then trying to squeeze homeowners for more profits.

A $26 billion settlement to fix a $700 billion problem fails to meet the needs of America's homeowners. We are eager to see Attorney General Schneiderman and the Department of Justice take this lead and we urge them not to back down until the banks that took advantage of vulnerable families come to the table to fix the damage they have done.

"A WIN FOR ALL SIDES"? THAT'S WHAT REUTERS
FINANCIAL BLOGGER FELIX SALMON SUGGESTS

Salmon ventures in his post, "The positive mortgage settlement":

If you’'re a bank shareholder breathing a sigh of relief, then don't. The only thing you're protected against, now, is lawsuits over robosigning. Were those likely to cost $25 billion if they had gone to court? It seems unlikely to me that they could have raised that much. Other big-money lawsuits over securitization can and almost certainly will still be brought -- which means that the big banks all still have significant litigation risk hanging over their heads.

Salmon suggests that today's settlement may be --

that rarest of settlements, one which really is a win for all sides. The attorneys general get a big deal, homeowners who got foreclosed upon get $2,000 apiece, and the banks get to do the kind of principal reductions they probably have wanted to do for a while, but while getting significant immunity from prosecution at the same time.

AND REMEMBER, THE SETTLEMENT DEALS ONLY
WITH CIVIL LIABILITY IN THE ROBOSIGNING CASES

This afternoon Delaware AG Beau Biden, on the air with MSNBC, said in reply to a question from Mike Barnicle about the state AGs' ability going forward "to pursue cases criminally":

We retained our ability to pursue criminal cases. What you saw in Missouri last Friday is Chris Costa, the attorney general of Missouri, indicted one of the leading document-servicer companies called Doc X. He indicted their CEO and president. This is a group of people that for the banks perpetrated the robosigning scandal. This is the famous Linda Green, the person who signed tens of thousands of affidavits fraudulently. He indicted the woman that runs that company. You'll see criminal investigations are going to continue.

SO NOW WE WAIT AND SEE -- AND MAYBE TRY
TO MAKE SURE TO MAKE AS MUCH NOISE AS WE CAN

Reuters' Felix Salmon anticipated my conclusion, writing: "Now, I guess, we just wait and see what happens with all the other possible prosecutions and lawsuits, especially in New York and California. And, of course, from the FHFA [Federal Housing Finance Agency]."

Or maybe not just wait, for those of us to whom it matters whether any measure of accountability is achieved. I'm thinking of the importance Eric Schneiderman attached in the interview with Greg Sargent to the coalition that brought to bear the pressure that laid the groundwork for what he considered today's victory -- and he hopes will continue to apply pressure. It's sure not likely to happen without that.

#