The so-called mortgage settlement looks to be coming apart at the seams. That does not mean there will not be a deal of some sort. Remember, a hallmark of the Obama administration is to do things simply to have more “achievements” to discuss. But not only, as has been rumored for some time, are a number of Republican attorneys general saying they will not join in the settlement, so are some Democrats as well.
It’s important to recognize that Democratic withdrawals are a far bigger problem for Obama than the Republicans. Given that a number of AGs signed up at the last minute, and some of the Republicans were not even on board with the concept of a mortgage settlement, defections among the GOP participants can be depicted as partisanship. By contrast, repudiation by Democrats, particularly Democrats that have garnered some attention in the national press by taking mortgage abuses seriously, is much harder for the Administration to explain away. And as David Dayen at Firedoglake reports, if enough AGs defect, the settlement becomes a dead letter:
The master settlement agreement with the tobacco industry in 1998 eventually got the agreement of 46 AGs, with the other four coming aboard later. That would be similar to the necessary outcome here; to become the official position of the National Association of Attorneys General, at least 38-41 of the AGs would have to sign on. And even that has no binding force to supersede state law.
As we anticipated, the AGs are unhappy about how the negotiations have been conducted (they have been kept in the dark and are now being railroaded) and the failure to have any serious investigations. Per Dayen, they are also concerned, as we are, that the banks will be given a broad release:
Democrats in AG offices across the country find themselves uncomfortable with the deal, in particular the speed with which it is being ushered through the system and the lack of clarity over what claims they would have to relinquish under the deal….
While the AG investigation was announced last fall, the settlement term sheet arrived with some surprise a couple weeks ago, just prior to a meeting of all 50 AGs in Washington. Democratic AGs and senior staff, who spoke off the record because of Tom Miller’s lead role in the case, said that they only received the term sheet, seen as a first offer to the banks, a couple days before the meeting, and didn’t know until they got to the meeting that it would be a big topic of discussion. And then, not only were the AGs told about the term sheet and the push for principal write-downs to save as many as 3 million homes from foreclosure, they were told they would have to make someone from their offices available full-time to enforce the terms of the settlement. And they were told that all of this would have to come together in a “window of opportunity” over the next 6-8 weeks…
The investigation hasn’t done much investigating to this point; no subpoenas have gone out and no depositions taken. Instead, the AG working group is mainly going off of consumer complaints and court findings….
Troublingly, there’s been very little indication from Miller and the AG working group on what they would have to give up in this exchange. That raises the spectre of a final agreement that legally indemnifies the banks while providing too little support to homeowners, just enough to make a big press conference full of back-patting about helping the little guy.
As we said earlier, this smacks of Iowa attorney general Tom Miller negotiating AGAINST the AG group on behalf of the Administration (and ultimately the banks) rather than playing his professed role of acting as lead negotiator/representative. If I were one of the AGs who’d been treated this way, I’d be ripshit.
And why all the haste? Well, it appears that cheerleading, letting the banks foreclose when investors would prefer deep principal mods to viable borrowers, ill-conceived Federal mortgage modification programs, and a head-in-the-sand approach to documentation problems and procedural abuses have done wonders for the housing market, which most experts expect to fall another 10% this year. The Administration appears prepared to redouble its efforts in this failed strategy since it lacks the guts to do anything that might actually be effective. But Team Obama still appears to believe that all problems can be solved via public relations. The fact that HAMP was an embarrassment appears to have led to the bizarre conclusion that the remedy is better modification theater:
That need for speed seems to be coming from the White House, who by all accounts want to move on a settlement quickly, and to use it as a way to promote economic recovery more than anything….The rush to settle, driven by Washington, appears to serve a political function of “doing something” about the housing market, which is rapidly falling apart.
But as we indicated, that’s simply delusional thinking. Even if the banks agreed to $20 billion worth of modifications, that’s insufficient to have any real impact. $20 billion on top of principal mods that would involve investors taking hits (which still leaves them well ahead of where they’d be in foreclosure) would be another matter entirely. But bizarrely, homeowners and investors, the parties who have most at stake, seem even less well represented than the AGs in these negotiations. And Dayen gives a simple example of why the proposed settlement may be a complete giveaway:
In just one case this week, a jury awarded a GI $20 million in a case where Coldwell Banker was accused of mishandling the man’s automatic monthly mortgage payment while he was on active duty overseas, improperly reporting him to credit bureaus with a serious delinquency, and then failing to correct the error. This was a standard servicer abuse case, just one of maybe millions, and it netted $20 million. Just 1,000 cases of this type would equal the $20 billion thrown around as a possible settlement number.
In fact, a lot of states would cut back this settlement amount considerably on appeal (in Alabama, the state Supreme court appears to have made a decision that no consumer matter can ever be worth more than $1 million). But more cases like this generate bad headlines and costly appeals and encourage more borrowers to litigate…..which lead to more fact patterns being established that make it easier for both state AGs and class action lawyers to take up much broader scale lawsuits.
The negotiations also are in disarray among the Federal regulators. The Office of the Comptroller of the Currency is trying to cut its own deal. As Reuters reports (hat tip Matt Stoller):
The primary regulator for the largest U.S. banks is preparing to move ahead on its own settlement with lenders over foreclosure practices and may announce a deal in the next few weeks, according to a source familiar with the process.
The Office of the Comptroller of the Currency’s possible split from other U.S. authorities would mark a dramatic shift away from efforts for a coordinated settlement with major mortgage servicers, including Bank of America Corp, Citigroup Inc and Wells Fargo & Co.
U.S. authorities — including bank regulators, the Department of Justice and a coalition of 50 state attorneys general — are probing allegations that banks foreclosed with improper documents and cut corners on repossessing homes from borrowers.
The OCC is in talks with the banks it regulates to prepare so-called consent orders, requiring the banks to fix faulty foreclosure processes within a certain timeframe, and potentially levying fines for violations, the source said.
The OCC, according to the source, has become impatient with infighting over the structure and shape of a coordinated settlement.
This is a more serious threat to the settlement than one might think. The OCC may be engaging in a parallel discussion to pressure the other Federal regulators and give Team Obama a face saving fallback if the AG/FDIC /Elizabeth Warren as member of the Treasury discussions fail. The OCC has been aggressive about preempting state regulation of national banks under the Supremacy Clause of the Constitution. It has said in past regulatory letters (hat tip Lisa Epstein) that its authority does not extend to matters that involve liability to investors in residential mortgages (effectively, in this letter, the trustees were trying to claim pre-emption for the benefit of the securitization certificate-holders; the OCC said that didn’t pass muster).
The open question here is where servicing falls. Geithner claimed that federal regulators have no authority over servicers; it would be interesting to see what theory the OCC uses if it decides to go the pre-emption route, particularly since the Supreme Court has consistently ruled that real estate transactions (as opposed to making real estate loans) is a state matter. Thus the conveyance of mortgage notes might be deemed to be a Federal matter, but it’s hard to see the OCC arguing that foreclosure-related matters are within its purview. But this is over my pay grade; we may see the lawyers duke this one out.
Another indication of disarray are efforts to add more bells and whistles to the proposal. This looks like part of a desperate effort to get to some kind of a deal rather than part of a coherent negotiating strategy. Note that this amounts to the Federal settlement team negotiating against itself; the banks have yet to make a counteroffer. Per the Financial Times:
The five biggest US mortgage servicers were told this week at a private meeting with regulators to consider paying delinquent borrowers up to $21,000 each as part of a broader settlement of the foreclosure crisis.
People who attended the meeting, chaired by the Federal Deposit Insurance Corporation on Monday, said the industry-wide “cash for keys” programme would involve the biggest servicers, led by Bank of America, paying borrowers as an incentive to leave their homes.
Banks would pay borrowers who are more than 90 days behind on mortgage payments up to $1,000 to seek independent financial advice and up to $20,000 in cash as a “fresh start” payment towards living costs in a new home. They would have to vacate their properties quickly and leave them in good condition….
However, prospects for a single “mega settlement” have worsened because officials disagree on the level of penalty and whether money raised in fines should be used for a principal writedown. The banking regulators, who do not agree among themselves, are nonetheless keen to come to an agreement quickly.
One way through the gridlock, which has been discussed among officials, is giving the servicers a menu of options for settlement, which might include principal writedown or a “cash for keys” scheme.
As we indicated, if this deal falls apart, or Obama merely comes up with a Potemkin program that fails to forestall state AG action, the public will be better served. The evidence is that enough judges still care about the rule of law that more and more bank abuses will come to light if the authorities leave matters to the courts.
Little technical point: Dayen appears to be misusing the term “indemnify.” There are always two parties in an indemnification, the indemnitor and the indemnitee. In an indemnification, most commonly seen in the insurance context, the indemnitor (usually the carrier) agrees to compensate the indemnitee (usually the insured) for any losses via third-party claims incurred by the indemnitee through certain contingencies, like the indemnitee’s negligent driving. Indemnification may or may not include a duty to defend, meaning the indemnitor agrees to foot the bill for litigation expenses, including reasonable attorneys fees.
I think the concept Dayen is reaching for here is more along the lines of “immunizing” the banks.
Let the sham settlement fail, and fast. No subpoenas; no depositions—no surprise. Can’t have any actual evidence _against_ the perps recorded; that might demonstrate actual liability, nay even criminality. Only “a four-six week window of opportunity” to get a settlement . . . or what? The perps will all take their business to Dubai? They’ll hire mercs from off the streetcorners to ring the White house with multiple-rocket launchers? They’ll all give money to the Republicrats rather than the Demoblicans? What?? Opportunity for whom. A settlement sheet thrust under the nose of responsible public officials _at a public meeting with NO prior announcement_, them without even staff to do a run down on it?
This settlement sell-out process is even more despicible than the practices which provoked it. It is obvious that ‘our’ government is simply working for the banks, essentially taking over their legal defense for free—NO! paying, _paying_ the banks to settle (remember they still owe the public for TARP, and are receiving tens of billions of support in having rotten MBSs bought off of their books). A complete disgrace. . . . Man, the revolution can’t come soon enough. And gross corruption of governance and business is the kind of thing to make the sheeple lose their residual faith in the system which shakes them down without surcease.
State AGs can initiate criminal actions. They can convene a grand jury and get the ok to arrest people and put them in jail cells. My suggestion is that one of these disgruntled characters do that. Use your power. Put these crooks on trial in the criminal courts. They do this every day for someone who kites a check. Do it for the CEOs and board members of these criminal organizations.
Goodness, when does the fun start and can I join? I’m 72 years old, but did put my time in the service of my country in the U.S.Marine Corps. I can do something besides sit on my backside.
Bang the drum slowly!
Greave for the loss of the Republic!
Depending on how long ago your service was, the country you served is probably not there anymore.
After all, we’re dithering about MERS and fraudulent avoidance of due process.
Bang the drum slowly; and,
We have 5MM properties in default/foreclosure. If each foreclosure takes 1000 hours of lawyer time, we might see a GDP stimulus of the size needed to jump-start the economy!
Go for it AGs! No deal! Let’s float this baby!
Don’t know if anything will help at this point, but there is a planned call-in protest of this obscenity to each of our AG’s for March 29:
I would like to know how these types of matters affect the flow of campaign cash from the DNC to these AGs and their governors. Could Team Obama close the faucet to any AG that doesn’t follow their lead?
An article in Science News asks the question:
How can cooperation develop if individuals can do better for themselves by cheating?
In a community garden, for example, the lazy gardener who does nothing may reap as big a share of the produce as the hardest worker.
Such antisocial behavior is reduced if cheaters face consequences. An industrious gardener may deny the slacker his share of the harvest, for example. But that raises another issue. Gardeners who pitch in but don’t punish freeloaders may get just as much produce as those who punish, without the risk and trouble of punishing someone.
Short-term self-interest seems to encourage an individual either to cheat or to cooperate but not to punish. (emphasis mine) In the long run, however, everyone is better off if most people both cooperate and punish. Then cheaters don’t profit, the burden of punishing is light, and many people reap the benefits of cooperation.
See article for details of experimental set-up, assumptions, etc., but some conclusions from the piece follow:
Over time, the researchers discovered, cheating becomes more and more prevalent and ruins the investment for everyone. Nearly all the agents stop participating.
But from this state of near-total non-participation, a few agents will occasionally begin to cooperate simultaneously, with no freeloaders. These groups start making more money than everyone else, and their success leads the non-participants to imitate their strategy. The small groups grow, producing a large group of punishers or a large group of non-punishing cooperators.
Big groups of non-punishing cooperators are an easy target for cheaters. (emphasis mine) One agent randomly tries cheating and makes a load of cash, and then other agents imitate the strategy, soon making it unprofitable for anyone to cooperate. But if the group consists primarily of punishers, an agent who tries cheating loses money to numerous fines, which discourages others from cheating. Groups with plenty of punishers therefore tend to be very stable and long-lasting, because they produce plenty of cooperators.
If participation were mandatory, the state of near-total non-participation could never occur, so even if a small group of cooperators arose, it wouldn’t have enough influence to make cooperation the norm.
The experiment was within the context of a hypothetical ‘enterprise’…
I’d suggest that’s just what a nation, or social contract IS.
My own conclusions (not based on this alone certainly)…
*First and foremost… EMPOWER CO-OPERATORS
* Capabilities for regulation and oversight must be widely distributed and available to the general public (tools for transparency and an encouragement of bounties).
* Capabilities for distributed empowerment and a clearer recognition of money as a ‘decision technology’ along with technologies reducing the cost of political participation for both potential candidates and citizens generally … (unlike what happened with that old social technology known as television where a failure to protect the Commons is a central reason WHY politics IS so expensive when it needn’t be)
* Addressing scale along with the role of social, cultural and physical proximity and its somewhat problematic relationship to fundamental human drives.
Political Fundraising: Act Blue, Facebook and the Missing Network Imperative
* Political monetary participation must be unencumbered and simplified (including especially at the micro-transaction level), its networking must be facilitated and the utility that enables that must be (in some form) universally owned.
Empowering the Commons: The Dedicated Account (Part I)
P.S. You’ll have a very long wait if you expect the ‘establishment’ to have any interest in such simple changes. I don’t think the planet has many more chances to blow it the way we keep doing.
Speaking personally, the way is difficult for those trying to implement or even explore rational reform.
P.P.S. Dear Mr. Stumpf, please straighten out your bank… and just curious, but what role would be yours in the above experiment: a cheater, a punisher, a cooperator who doesn’t punish, or a non-participant?
Google “Prisoner’s Dilemma”
Private rights of action would be very helpful…
heres the deal:
the problems we face from society currently are not from individuals acting in an anti-social matter. it is the group organizations that promote anti-social behavior and teach that rewards of being such are desired and okay.
long story short (i’ve had a cocktail or two and my three year old wants PEZ loaded into her minne mouse) – the answer is forcing corporations to become cooperatives. pretty simple really. okay. most people that read this train wreck daily are pretty smart and utterly disgusted with details of the crimes – so lets put this in practice and proceed in another way. simply start with a mortgage debtors union and away we go. simple really.
we will get them to the table (our table of course).
A well put letter to editor of the New York Times from Paul Fitzgerald of Lisle, Illinois today speaks quite succinctly to today’s issue of government by the banks, for the banks, let the people be damned. With regard to the banking industry’s outrage that Elizabeth Warren’s agency will operate with little oversight, Paul astutely observes “that is exactly the point….there’s very little reason to have an enforcement agency that can be shot down at every turn by politicians who are beholden to those who caused the problems in the first place”. I worry that the State AG’s themselves will be subject the same sort of political interference. Regardless, I applaud those AG’s who are pulling out and seeing this as the cover up of regulatory ineptitude and bankster fraud that it truly is.
Gee, isn’t “political independence” part of the Fed’s mantra?
Banks and servicers have frequently stated that they have not engaged in systemic, widespread actions that are contrary to, or undermine, property laws. Why not take them at their word and withdraw from negotiations and have the Feds make block grants to states to hire aggressive lawyers to put this assertion to the test? Forging documents, knowingly filing false affidavits, etc. Folks should be going to jail and they should be senior partners, managing directors and that level, not (only) the individual robo-signers.
Certainly many of thee banks need a wake up call from the “people”. What can we do that can have some effect?
Beware of doing anything against the banks. Someone in Congress could write to the US AG stating you’re a terrorisss
And do not think I’m kidding.
Thanks for the link. More here —
And just to be explicit, the putative “terrorism” here is an entirely legal option that’s been used by the Mortgage Bankers Association.
I think the saddest thing about president Obama is the inability of his mind to form the question “what will actually fix this problem?” The question that seems to be repeatedly formed there is “how do we create the illusion that something is being done?” I wonder what part of his upbringing or education caused this. Is there a point where the crisis becomes so bad that he is forced to do something ‘real’? I doubt it, and that’s sad too, and not just for him.
Maybe Obama correctly realizes any “real solution” would destroy him politically by alienating his fatcat campaign contributors. Appearance is all that remains.
It only takes a one letter shift in the alphabet or on the qwerty.
President Obama = President Potemkin
“The Administration … lacks the guts to do anything that might actually be effective.”
I doubt it’s a matter of guts at all, but part of their Shock Doctrine strategy. Ditto on “the Federal settlement team negotiating against itself.” This is now too obvious a pattern to dismiss it as bad negotiation skills, but rather, as purposeful and devious collusion, with malice aforethought.
In related news, Dr. Housing Bubble notes: “The worst housing crash in history is official: Lesson from the Great Depression Part 29. New home sales fell 80 percent from 1929 to 1932 and fell 82 percent from 2005 to 2011.”
Obama can think just fine. The first question he always asks himself is how will it affect his campaign financing if he thumps Wall Street !
Re: “… how will it affect his campaign financing if he thumps Wall Street !”
==> Whoa, wait, I though Obama was funded by pennies, dimes and nickles donated by college kids and all those people that wanted change … what’s this about wall street campaign financing and thoughts of Obama being in bed with fatcats, crooks, whores, drug dealers, terrorists and all the people that conspire with DOJ, FBI, SEC, FTC, Treasury, Congress … and on and on, not to exclude the Mafia and other people that all share the same soap after being stuck together in their (gross and disgusting) financial orgies … ah well, who cares, right.
My apologies to all the soap bars.
Looking for a few AGs and state judiciary with a conscience. The Mob’s tough corruption challenge.
The reasonable alternative is impeaching the President, it’s obvious he’s a marionette trained for corrupt mobsters: “War here, financial ruin there!”
Next would be a vow never to do any business with a Bank in this country ever again. (That’s a tough one) Finally, refusing to play the “party line” from the Politburo/Forth Elite Estate, turning our collective backs on illegitimate authority, and gearing up for the time that they consider all of us terrorists for being “independant”.
obama is a FR$UD
I still think it’s a character flaw. Someone like H. Truman or even LBJ would eventually put their head in their hands and say to himself “oh my god, how are we going to fix this mess.” I just don’t think president Obama has that capacity. Some people don’t.
Don’t knock LBJ.
According to those who were there, when the Civil Rights Voting Act of 1965 went to Johnson to sign, he said, “If I sign this, it will lose us (the Democrats) the South for generations to come.”
But then he said, “But what’s the presidency for?” And he signed it.
Umm, he wasn’t knocking LBJ. The point was that LBJ or Truman would have tried to really do something besides give good teleprompter and keep shoveling more of the SOS.
SOB — Save Our Banksters. The poor fellows are trying — very trying.
I’m suggesting there’s no “even LBJ” about it. Johnson gets insufficient credit because of the Vietnam debacle.
Its not that Obama can’t stop and figure out how to fix problems — it is that he just doesn’t care. It is all about him, and what is in his personnel best interest. He is behaving very rationally, and with a clear head.
Re: “I still think it’s a character flaw.”
==> That flaw seems to be opening wider every day and looking more like a black hole, or ATM or something far deeper than I can imagine….
“Geithner claimed that federal regulators have no authority over servicers”
i coulda sworn that a lot of services are … banks. i coulda sworn the federal government regulates banks.
i think perhaps Obama’s team is too busy trying to prosecute whistleblowers under the Espionage Act (which will chill the entire federal government, not just the military agencies) and not busy enough prosecuting certain financial crimes.
Dave Dayen: “Just 1,000 cases of this type [$20 million settlement] would equal the $20 billion thrown around as a possible settlement number.
Wow, imagine if 1 million homeowners hit the jackpot. What is 1 million times 20 million? My calculator doesn’t have enough space for the zeroes, but I think the number might be something like 40% of world GDP.
No wonder the administration wants to disregard the law.
In the immortal words of Peggy Noonan, regarding another instance in which this administration decided to disregard the law, because to adhere to it, and to uphold it, would’ve been a big pain-in-the-ass, “Sometimes in life you wanna just…keep…walkin.'”
Sure would like to see a list of the AG’s against this thing so we can congratulate them for not bowing to pressure.
We need to haul the asses of these Wall St & Bankster companies out in the daylight for all to see, and start asking them some very pointed questions, under oath. If that means prison for most of them, so be it.
Then, our government needs to finally DO IT’S JOB and make Americans whole. If the Banksters can’t legally prove they own the properties they foreclosed on, they need to give them back to the people. So what if the banks go belly up. They sure as hell didn’t mind making millions of American families go belly up (and worse).
You know the writing is on the wall when Hillary separates herself. The subtext is election season. It’s easier to cut first and rejoin later than to martyr yourself.
God I hate election season.
cash for keys? If the bank gives me 20,000 to vacate my property and leave it in good condition, I would take it. I’m wondering if I would have to become delinquient to qualify. However, if participating in the cash for keys program wrecks my credit and the bank can still come after me for negative equity, I would do better to quit paying my mortgage and save that money for as long as it takes them to foreclose on me. I’m betting that I would have more cash in the second scenario than the first. In fact, I could get really slimy and rent my house out while not paying the mortgage for a year or two and double the amount of cash I walk away with. Either way, my credit is wrecked.
It is sad that a person who has always honored his debts is having these conversations with himself. But when the deck is stacked so heavily against you, sometimes you have to lower your self to the mentality of the bank.
The Banks talk to themselves too, they know all about “the shame people feel”, all sorts of assorted Christian-Victorian control mechanisms. Self loathing is prevalent amongst the proletariat, artists, creators and others. However once a drone understands he and millions of others have been stolen from – just as real as a street thug picking his pocket – you’ll realize “debtor guilt” was just another lie from the guy who just emptied your wallet in the first place. It’s a subtle, prolonged terror attack largely brought to us through information technology.
I cannot believe our Pres has squandered so much political capital by failing to deal with the banking kleptocracy.
He could have easily…but he blew it big time.Weak !!!!!!
For a smart guy he has proved amazingly dumb on this issue.
It will do for him at the next election for sure.
Maybe we really do need a new Revolution ?
Crime is crime. Our society generations of children will learn from our action dealing with these criminals. Does it flay or not? Bankers are Mafia type criminals going in, when you consider what the founders set up for us to use said, Congress shall have power to coin money and regulate the value thereof, If the banks fail to correct their mess then we can, the next election, Only vote for who the banks reject. Like Ron Paul and Michelle Bachmann who both understand the federal reserve is illegal stealing the fruits of our endeavors. Why should we pay interest to any one?
Let the deal fail – I say death by a thousand cuts to these banks – let private law firms and individual AGs file class actions and bleed the banks dry. I don’t even care how rich the law firms get doing it. We should not have bailed out the top banks. Bad for capitalism, bad for democracy.
“BOA throws lavish party at 230 Fifth” read here: http://brighton-towne.blogspot.com/2011/03/bank-of-america-partied-with-your-money.html