CommunityFDL Main Blog

The “Robo-Signed” Foreclosure Fraud Settlement

HUD Secretary Shaun Donovan worries critics misrepresent still undisclosed settlement

The New York Post correctly calls the foreclosure fraud settlement something analagous to the robo-signing scandal the settlement releases from liability. Yes, it’s the Post, but this is absolutely spot-on:

More than a year after the scandal broke over the rapid signing of thousands of foreclosure documents without reviewing their accuracy, New York Attorney General Eric Schneiderman and his cohorts, along with the Justice Department and the Department of Housing and Urban Development, are crowing.

They claim they’ve clinched a $25 billion deal to punish five big banks for robo-signing and other wrongdoing in the foreclosure mess.

Trouble is, the regulators don’t have a final deal, just a provisional one. Important elements could change — likely for the worse for homeowners and investors — before the army of bank and government lawyers involved signs off.

This means the regulators essentially rushed to push through an incomplete and flawed document, just like robo-signers did, without all the critical facts at hand. Instead of a detailed term sheet, there’s only a “coming soon” tag on the National Mortgage Settlement Web site.

The state and federal regulators may complain that this is just a distortion, and that they have a very difficult job to figure out the terms for 49 states and multiple federal agencies, and they’re just working out the complexities. Well, they should have thought of that when they announced a settlement to great fanfare. Terms matter, and without them, the settlement is no more than a theory. So the leadership shouldn’t get upset when they open themselves up to criticism – and a far worse deal once the language is written – by handling things in this way.

Consider, for example, the controversy over who will ultimately pay for the settlement, described by Mark Gongloff and Ben Hallman at the Huffington Post:

Based on currently available information about the settlement, there’s no way to refute the government’s claim that banks will bear the brunt of the settlement’s costs. But the waters have been muddied by past government statements, and by the government’s failure to make the terms of the settlement public even as it rushed to announce that a deal was done.

And there is still plenty of room to argue that banks, which are settling charges that they mishandled thousands of troubled mortgages, are getting off fairly easily in what is supposed to be a deal that punishes them and deters future misdeeds.

The story basically follows HUD Secretary Shaun Donovan pushing back on claims made by “progressive bloggers” (that would be me) about aspects of the settlement, including the latest evidence that banks can use HAMP modifications and have them partially count toward the settlement, while receiving incentive payments at the same time. HUD pushed back on that as well, saying that federal money would not be used to pay down settlement obligations.

That doesn’t contradict with Shahien Nasiripour’s story in the Financial Times at all. Everyone who reported on this added the proviso that the subsidized portion of the principal write-down would not get counted toward the settlement. But banks are getting cash in hand for a write-down that they would probably have eventually done anyway, as it just amounts to marking their books to market more accurately. They get the money immediately and can put it to use. And they get other incentives tied into HAMP, like incentives for the borrower staying current, and incentives through the settlement, like for doing the principal reduction in the first year of the loan, that will not be offset, in all likelihood. As Neil Barofsky, former special inspector general for TARP, said to HuffPo, “You can’t say this settlement has anything to do with deterrence or is punitive in nature if money is flowing into banks from taxpayers as part of the settlement.”

But the larger point is this: HUD and the other state and federal agencies are mad that their settlement has been mischaracterized. There’s a really, really simple remedy for that: release the terms. Then everyone can work off the same set of facts. Until then, I don’t really want to hear about how “progressive bloggers” are saying “fundamentally not true” things. Unless and until terms are released, everybody’s just guessing at the outcome.

CommunityThe Bullpen

The “Robo-Signed” Foreclosure Fraud Settlement

The New York Post correctly calls the foreclosure fraud settlement something analagous to the robo-signing scandal the settlement releases from liability. Yes, it’s the Post, but this is absolutely spot-on:

More than a year after the scandal broke over the rapid signing of thousands of foreclosure documents without reviewing their accuracy, New York Attorney General Eric Schneiderman and his cohorts, along with the Justice Department and the Department of Housing and Urban Development, are crowing.

They claim they’ve clinched a $25 billion deal to punish five big banks for robo-signing and other wrongdoing in the foreclosure mess.

Trouble is, the regulators don’t have a final deal, just a provisional one. Important elements could change — likely for the worse for homeowners and investors — before the army of bank and government lawyers involved signs off.

This means the regulators essentially rushed to push through an incomplete and flawed document, just like robo-signers did, without all the critical facts at hand. Instead of a detailed term sheet, there’s only a “coming soon” tag on the National Mortgage Settlement Web site.

The state and federal regulators may complain that this is just a distortion, and that they have a very difficult job to figure out the term for 49 states and multiple federal agencies, and they’re just working out the complexities. Well, they should have thought of that when they announced a settlement to great fanfare. Terms matter, and without them, the settlement is no more than a theory. So the leadership shouldn’t get upset when they open themselves up to criticism – and a far worse deal once the language is written – by handling things in this way.

Consider, for example, the controversy over who will ultimately pay for the settlement, described by Mark Gongloff and Ben Hallman at the Huffington Post:

Based on currently available information about the settlement, there’s no way to refute the government’s claim that banks will bear the brunt of the settlement’s costs. But the waters have been muddied by past government statements, and by the government’s failure to make the terms of the settlement public even as it rushed to announce that a deal was done.

And there is still plenty of room to argue that banks, which are settling charges that they mishandled thousands of troubled mortgages, are getting off fairly easily in what is supposed to be a deal that punishes them and deters future misdeeds.

The story basically follows HUD Secretary Shaun Donovan pushing back on claims made by “progressive bloggers” (that would be me) about aspects of the settlement, including the latest evidence that banks can use HAMP modifications and have them partially count toward the settlement, while receiving incentive payments at the same time. HUD pushed back on that as well, saying that federal money would not be used to pay down settlement obligations.

That doesn’t contradict with Shahien Nasiripour’s story in the Financial Times at all. Everyone who reported on this added the proviso that the subsidized portion of the principal write-down would not get counted toward the settlement. But banks are getting cash in hand for a write-down that they would probably have eventually done anyway, as it just amounts to marking their books to market more accurately. They get the money immediately and can put it to use. And they get other incentives tied into HAMP, like incentives for the borrower staying current, and incentives through the settlement, like for doing the principal reduction in the first year of the loan, that will not be offset, in all likelihood. As Neil Barofsky, former special inspector general for TARP, said to HuffPo, “You can’t say this settlement has anything to do with deterrence or is punitive in nature if money is flowing into banks from taxpayers as part of the settlement.”

But the larger point is this: HUD and the other state and federal agencies are mad that their settlement has been mischaracterized. There’s a really, really simple remedy for that: release the terms. Then everyone can work off the same set of facts. Until then, I don’t really want to hear about how “progressive bloggers” are saying “fundamentally not true” things. Unless and until terms are released, everybody’s just guessing at the outcome.

Previous post

Movie Night Preview - Paradise Lost 3: Purgatory

Next post

Eric Cantor Unveils Plan to Fight Tax Cuts with Tax Cuts

David Dayen

David Dayen