I’m having trouble understanding why anyone is still treating the Federal/state attorney general mortgage “settlement” negotiations as anything other that a fiasco. The more news reports come out, the more the parties aligned against the banks look like fools.
The latest confirmation comes in an article by Shahien Nasiripour in the Huffington Post that a member of the Department of Justice briefed state attorneys general and reported that the biggest banks in the servicing business had resigned themselves to paying $20 billion:
The nation’s largest mortgage companies are operating on the assumption that they will have to pay as much as $20 billion to resolve claims of widespread foreclosure abuse, an amount four times what they had originally proposed, the top federal official overseeing the discussions told state officials Monday, according to people who participated in the conversation.
Associate U.S. Attorney General Tom Perrelli told a bipartisan group of state attorneys general during a conference call that he believes the banks have accepted the realization that a wide-ranging settlement to the months-long probes will cost them much more than the $5 billion offer they floated last month, according to officials with direct knowledge of the call. Perrelli said he’s basing his belief on his recent conversations with representatives of the five targeted firms: Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial.
Sounds impressive, right? It’s not.
You don’t negotiate price without negotiating terms, and yet this exactly what is happening. The dollar figure utterly meaningless unless you know what is being traded off against it. A bigger dollar figure means the banks will demand a broader waiver against liability, which is precisely what we warned against (actually, we advised this craven political exercise be dropped, since no investigations had been conducted and hence the Federal/state negotiators had no bargaining leverage). You don’t give a waiver unless you have an idea the depth and nature of the abuses and the likely costs associated with them. As Dave Dayen at FireDogLake points out, the Abigail Field report, based on one person’s work, suggest the mortgage chain of title abuses are pervasive. We’ve been told that other investigations under way are coming up with similar results. That confirms that banks have a sinkhole of exposure. As we said early on, they’d be getting a fantastic deal if they got a broad waiver for a mere $20 billion.
And any “$20 billion” is likely to be a lot less in real economic terms. It’s not hard to imagine that any costs would be spread out over years, reducing its value in current dollar term, or might come the form of promises to change business practices, or fund certain activities, and those actions might not take place (how much monitoring do you think really will take place once the settlement team takes its photo op?)
But the banks may be playing the negotiators for fools on more than one level. Many of the state AGs are not keen to give the banks a “get out of jail free” card. New York, Illinois, California, Nevada, and Arizona are pursuing investigations and/or suits of their own, which means they are effectively out of the settlement. Shahien reports that Delaware has stated a probe of MERS, which suggests it will also exit the state AG effort. More states will withdraw if the waiver is, ahem, generous. And certain Republican AGs, by contrast, are opposed to having the banks subjected to even a slap on the wrist. They joined the negotiations for the sole purpose of quitting in a huff when the deal was finalized.
So the AG settlement looks to be a PR fabrication to make this whole exercise look serious. And as we’ve said repeatedly, the notion that this Administration will get tough with banks when they’ve gotten so deeply in bed with them and need their contributions for the 2012 election is sheer fantasy.
Dayen says, “I’ve lost sight of why we’re still having this conversation.” And I’m getting frustrated as well with this ridiculous PR effort which has only the potential to make matters worse (by letting the banks off easy) on the generous assumption that a deal actually gets done. But this ranks as one of the most utterly incompetent negotiations I have even seen. I’m assuming that this is simply a half-hearted effort to provide credible cover for a “the banks are putting this behind them” story, when that’s untrue too (a Federal/state won’t stop private lawsuits).
But after the buttoned-down stress test charade, the Obama Administration seems to be dialing its performance in on the banking front, not even bothering to go to the trouble to have its conduct look consistent or credible (pretty much everyone who has been paying attention has taken a dim view of everything it has done on the mortgage front, from HAMP to its continued bad foreclosure policies at Fannie and Freddie (continuing a speedy foreclosure process which encourages servicer abuses, continued reliance on foreclosure mills) to its phony investigation last fall (which we have repeatedly attacked) to the phony consent orders which appeared to be an OCC effort to undermine the HUD-DOJ-attorneys general negotiations. This Adminisitration is not only showing how deeply it is in bed with the banks, but also its inability to shoot straight.