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Robo-signing settlement called ‘good step,’ ‘sell-out’

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Responses from community groups and advocates to the robo-signing settlement [2] announced Thursday ranged from “good first step” to “sell-out to Wall Street.”

The Woodstock Institute [3] emphasized the significant precedent of requiring banks to write down principals for homeowners who owe more than their homes are worth – an approach lenders have generally avoided taking until now.

The settlement “won’t end the troubles of homeowners” but is a “significant step in the right direction,” said Dory Rand.  She said resources need to be targeted to the hardest-hit communities. She called it “a real victory for homeowners.”

The $1 billion in homeowner relief expected for Illinois “will not suffice to restore all of homeowners’ lost wealth” but “it can potentially turn back the tides of default in hard-hit communities,” she said.

Woodstock estimates that 400,000 Chicago-area homeowners are underwater on their mortgages, together owing nearly $25 billion more than their homes are worth.

Rand reiterated Woodstock’s call on the Federal Home Finance Authority to stop blocking Fannie Mae and Freddie Mac from writing down principals in mortgage modifications.

Paltry restitution

In contrast, a coalition of community groups said the settlement “let banks off the hook.”

“Our elected officials completely sold out the people again to their Wall Street friends,” said IIRON [4], a regional network including Northside POWER and Southsiders Organized for Unity and Liberation.

IIRON emphasized the paltry sums given in restitution to homeowners who lost their homes due to fraudulent foreclosure practices.  They stand to receive up to $2,000 each.

The federal government and state attorney generals “let banks off the hook” for what amounts to “moving costs for families defrauded of their homes by criminal banks,” according to the group.

(“We’ve now set a price for forgery and fabricating loans,” comments Yves Smith at Naked Capitalism [5].  “It’s $2,000 per loan.  This is a rounding error compared to the chain-of-title problems these systemic practices were designed to circumvent.” Smith gives 12 reasons “why this deal stinks.”)

(“Does a $2,000 check … make up for losing your home because it was foreclosed upon illegally?” asks R.J. Eskow at the Campaign for America’s Future [6].)

Grassroots pressure

The “flawed settlement” is stronger than it would have been without the pressure of grassroots groups who fought for more relief to homeowners and to ensure that banks aren’t absolved of all legal liability, IIRON said.  The group had called on Attorney General Lisa Madigan not to sign a settlement granting banks broad release from liability, protesting outside a meeting of state AGs [7] at the O’Hare Hilton last month.

The final settlement was closely focused on robo-signing and foreclosure fraud, and it allows investigations to continue into other criminal activity by banks in the housing and financial crash.   It provides some funds for legal aid and housing counseling.

While the settlement includes new standards for mortgage services, including an end to the “dual track” where foreclosure was pursued while loan modifications were in the works, Smith points out that servicers have consistently failed to comply with past consent decrees.

She also points out that the cost of principal reductions will be borne not by the banks themselves but by mortgage investors, including taxpayer-backed Fannie Mae and Freddie Mac along with pension funds.  She calls it a “stealth bailout.”

Call for full investigation

The deal is “suspect on its face” because it was reached before a full investigation into the robo-signing scandal was carried out, said Robert Borosage of CAF [8].  The state AGs lacked the resources for such an investigation, and the Obama administration  “has been committed to keeping insolvent banks afloat [rather than] holding them accountable.”

The settlement “gets a relatively small sum from the banks in exchange for limited liability on their flagrantly illegal robo-signing,” he said

He called for sustained pressure on the administration for a full investigation of banks, leveraged into serious, broad relief for homeowners

“What’s clear is that the banks trampled the law in their wilding while blowing up the housing bubble,” Borosage said. “They abused homeowners, committed routine forgery and perjury before the courts, and defrauded investors. The housing market then collapsed, leaving homeowners about $700 billion under water.”

The fact that  the settlement allows further investigations — due to insistence by attorney generals in New York, California, and a few other states — “could be a big deal,” comments Eskow, but only “if the administration stops coddling banks and devotes a lot more resources to helping homeowners and upholding justice.”