The Washington Post

What the foreclosure, mortgage fraud settlement means

Feb 10, 2012

State and federal officials on Thursday announced a settlement of more than $25 billion with five of the nation's banks over their flawed and fraudulent foreclosure practices. It is the largest government-industry settlement in more than a decade.

Live chat with Charles Lane about the settlement. Discuss whether the settlement is too much or not enough, fair or unfair, and get to know the details.

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Related:
Landmark settlement announced on foreclosure, mortgage fraud

Is there any move to revoke the corporate charters of any of these companies? In theory, the people grant charters to businesses to allow them to operate. If they prove themselves to be terrible citizens - by say, committing massive fraud and contributing to economic meltdown - that seems to be a great reason to revoke that charter.

No move afoot to strip these banks of their corporate charter that I know of. Massive fraud has been alleged but not yet proved.

Will the settlement block or support disclosure of documents revealing robosigning fraud? Will it facilitate class actions? Can the trivial $2000 offer be admitted as an admission of wrongdoing?

The answer is that all kinds of individual and class action suits are still available. But they will be hard to win since you're going to have to come up with a plaintiff who can actually show that he or she was foreclosed because of bank misconduct, as opposed to being delinquent on payments.

I'm glad that the banks finally have to pay compensation back for their practices and that they are still available for individual lawsuits and additional investigations. My only quesiton is what took so long? We've known that this was the cause of the economic collapse for 4 years now, why such a long time to get to this point?

Actually, the practices at issue in this case had nothing to do with the collapse, since it's all about alleged malfeasance during foreclosures AFTER the economic collapse began.

 

Why are mortgages owned by Fannie Mae excluded from the settlement? My mortgage payment is to BofA.

The settlement is limited to mortgages held in banks' own portfolios. I don't believe there was any claim that Fannie and Freddie engaged in the wrongdoing at issue here, namely robo-signing.

When will we begin persecuting the cause of the problem - the folks that lied on the application, or those that deliberately mis-rated the loans?

Not in this settlement, apparently.

My house is under water but I have never missed a payment. I just want to be able to refinance which BOFA won't allow. I keep hearing about something coming for borrowers like me who are in god standing but their houses are severly under water. Is this it or is there something else that govt is working on? I hate that banks won't even talk to me until I stop making payments.

I feel your pain. It does seem strange that the way to get "relief" is to miss payments.

That's why I wonder about the politics of this deal. Administration assumes public sympathizes with the "victim" borrowers, but I am not sure that's true.

I am current on my mortgage and have never missed a payment. But since my mortgage is back by Freddie Mac, am I not eligible to refinance under this plan in Virginia? Thanks.

No mortgages backed by Freddie are eligible.

My mortgage is with PNC and I'm way underwater. They aren't one of the five banks in the deal right? So no hope for me? I owe $80k on my house (bought in 2002, opps) and a (nicer) house next door just sold for $30k, should I walk away? It all seems so hopeless :(

PNC might join the deal later.

Here's my question: unless you have recently tried to sell your house, how do you know if you are underwater? Is it just that you visited Zillow and saw your home's value below what you paid for it? (That seems a pretty inaccurate way of figuring it out to me. Wouldn't an appraisal be basically the only way to know?)

Yes, which means a lot of the advertised "relief" is pretty notional.

Hi. I have 2 mortgages, a 1st mortgage and a 2nd mortgage (home equity loan). The 2nd mortgage is for an amount over the property's value. It may or may not be held by the 1st mortgagee (hard to tell who holds the note). Will this settlement help me at all? This is an interest only 2nd mortgage, so I am dreading the interest rate reset one day. Thanks!

There are a lot of questions here that essentially ask me to advise individuals on their particular circumstances. I am not qualified to do that. However, part of the settlement is money to the state attorneys general for more housing counselors and homeowner assistance, so perhaps that will aid some of you. Meanwhile, it is clear to me that the more programs they announce, the more they just confuse people -- initially at least.

How long will it be before anyone starts seeing any of this money?

Good question. It will probably take at least until April to get cranked up, though the banks have had time to prepare already. The deal does give them strong incentives to ramp it up in the first year, though.

It isn't "hard" to find people foreclosed on by bank error/fraud. There are examples by the thousands. Telling people to default to "qualify" for HAMP or HARP or any loan mod and them slamming them into f.c. - that was harm. The so-called dual track was so egregious that it is mentioned in the "setttlement." Which sells them out...

Good luck proving any of that in any individual case in court. But at least the settlement bans dual tracking for the future.

Massachusetts, Nevada and Oklahoma are among the states where multi-million suits have been won against banks in fraudulent foreclosure dealings. The feds couldn't prove what the states did? Really? With almost no investigation that is probably true. Disgusted by this fast pass over such fraud.

Did those states actually win suits or just settlements? My clear understanding, from multiple sources, including those who advocated this agreement, is that practically no one was foreclosed on who was current on their mortgage, because of fraud or any other reason. Why would a bank foreclose on a performing loan?

Fannie hired David Srtern, the infamous robo-signing chopshop law firm in Florida. They are hardly blameless in that aspect of the fraud, as you state. They helped turn fast, illegal foreclosures into commodities.

There's a difference between an illegal foreclosure and an unjustified one. That's the paradox at the heart of this case. Obviously, the banks broke all kinds of legal rules by robo-signing, false affidavits, etc., etc. But the loans that were foreclosed on were, indeed, delinquent in almost every case.

What safegaurds does this settlement put in place for the future? And what will happen to these banks? Will they get punished at all?

There is a long list of safeguards imposed in the settlement, the gist of which is to ensure no more robo-signing or fake affidavits. Probably the most important is to restrict dual tracking.

We have our equity loan with Wells Fargo. We were originally paying principal and interest, then WF called one night and offered to lower our payments. Since things were tight, we agreed. They converted our payments to an interest-only loan, which we had been avoiding like the plague. Things are tight but we're making it and have never been late with a payment. Do we qualify for any relief?

You're not going to like this answer, but I feel I have to give it to you straight: why should you qualify for any relief.  It sounds to me like you took out a loan you could afford, then refinanced it on terms that you accepted voluntarily and can still meet even though you regret them. What is the problem? And more to the point, given all the people at there in much worse shape, what is the argument for focusing on cases like yours?

These banks help 1 million homeowners and in return they are guaranteed they won't be prosecuted for bringing on this horrible recession? A good deal for them it seems.

In response to several questions like this: the settlement does NOT guarantee that banks or their employees will escape criminal liability. In fact, that is specifically reserved. All the settlement does is limit their liability to civil lawsuits related to mortgage process misconduct.

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Charles Lane
Charles Lane is a Post editorial writer, specializing in economic policy, financial issues and trade, and a contributor to the PostPartisan blog. In 2009 he was a finalist for the Pulitzer Prize in Editorial Writing. He is the author of two books: ?The Day Freedom Died: The Colfax Massacre, the Supreme Court and the Betrayal of Reconstruction? (2008) and ?Stay of Execution: Saving the Death Penalty from Itself? (2010). Lane joined The Post in 2000 as an editorial writer, did a stint as The Post?s Supreme Court reporter and then rejoined the editorial board in 2007. Previously, he was editor and a senior editor of The New Republic from 1993 to 1999 and a foreign correspondent for Newsweek from 1987 to 1993. Lane studied at the Yale Law School and Harvard College. He is a member of the Council on Foreign Relations.
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