After some 500 days of negotiation, the deed was done. On Thursday, February 9, attorneys general representing nearly all 50 states announced that five major banks – Ally Financial, Bank of America, Citibank, JPMorgan Chase and Wells Fargo – agreed to pay a combined $25 billion over three years in civil penalties and loan write-downs for having serviced mortgage foreclosure paperwork without proper review.
Supporters call the deal justice done, if not necessarily a full measure of it. Yet for reasons explained later, a better term would be “shakedown.” Outwardly, the agreement would compensate homeowners from predatory lending practices, reform the banking industry and give the economy a boost. Yet based on evidence, the ulterior goal is further socialization the housing market – as if that process already hasn’t been well underway.
The announcement comes just eight days after President Obama unveiled a broad policy initiative, “Plan to Help Responsible Homeowners and Heal the Housing Market.” The heart of the plan is a measure that would enable about 1 million “underwater” (having negative equity in their homes) mortgage borrowers current on their payments to refinance on favorable terms. The program’s projected cost of $5 billion to $10 billion would be covered by a Financial Crisis Responsibility Fee, originally set a year ago at $30 billion over 10 years but since boosted to $61 billion over that period. The latter represents 0.17 percent of a penalized financial firm’s assets. It’s a bank tax, though the President views it as a corrective to the financial industry’s “abdication of responsibility.” Regardless of interpretation, it will force banks to prop up mortgage borrowers in trouble. And it rests on the assumption that a homeowner has a right to remain indefinitely in his dwelling, however far behind on scheduled payments.
That’s pretty much the essence of the new agreement as well – as could have been predicted. The settlement has its origins in the formation of a 50-state working group in October 2010 led by Iowa Attorney General Tom Miller. Attorneys general and regulators sought to get to the bottom of a growing litany of reports that mortgage servicing operations had been prematurely signing off on foreclosure-related documents. The project, known as Mortgage Foreclosure Multistate Group, would investigate whether servicers recklessly glossed over information to facilitate foreclosures and whether they signed foreclosure affidavits outside the presence of a notary public, among other issues. “This is not simply about a glitch in paperwork,” said Miller at the time. “It’s also about some companies violating the law and many people losing their homes.”
Carl F. Horowitz is director of the Organized Labor Accountability Project of the National Legal and Policy Center, a Townhall.com Gold Partner organization dedicated to promoting ethics in American public life.
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