Quelle Surprise! New York and California Attorneys General Look Ready to Sign on to Mortgage Settlement

The New York Times reports that two attorneys general of states regarded as important for the Obama Administration to declare the mortgage settlement a success have rejoined the negotiations, which says they are likely to sign the pact.

Kamala Harris, the California AG, was widely seen as “political” and therefore was not seen as a solid holdout. I remain disappointed by the conduct of our attorney general Eric Schneiderman, who is also now participating in the talks. His decision to join a Federal task force undermined the opposition to the settlement and looks to have cleared the way for the Administration to craft a win on this deal (note it is still possible it will not get done, but the odds were low as of last week and appear to be sinking further).

Assuming a deal is inked, Schneiderman and new partners in the Administration will no doubt contend that his involvement in the negotiations resulted in an improvement in terms for homeowners and states. I’m also told that he sincerely believes he can get a serious investigation underway and take advantage of Federal statutes with longer statutes of limitations than most state level ones.

Schneiderman may think he can beat the Administration at its own game, and if he can, more power to him, but I would not bet on him coming out on top.

It is too late (it was probably too late when Schneiderman sat in Michelle Obama’s box during the State of the Union address) but if you are in California or New York, you might as well call or e-mail your AG and give them a piece of your mind. Keeping the pressure on Schneiderman and Harris, and supporting AGs like Beau Biden of Delaware, Catherine Cortez Masto of Nevada, and Martha Coakley of Massachusetts, are the best hope we have at this point.

For New York, call 800 771-7755, 212 416-8000 or 518 474-5481 use the web form here or at his fundraising office. For Kamala Harris, call 916 445-9555 or this web form.

Key excerpts from the account in the New York Times:

The biggest remaining holdout, California, has returned to the negotiating table after a four-month absence, a change of heart that could increase the pot for mortgage relief nationwide to $25 billion from $19 billion.

Another important potential backer, Attorney General Eric T. Schneiderman of New York, has also signaled that he sees progress on provisions that prevented him from supporting it in the past.

The potential support from California and New York comes in exchange for tightening provisions of the settlement to preserve the right to investigate past misdeeds by banks, and stepping up oversight to ensure that the financial institutions live up to the deal and distribute the money to the hardest-hit homeowners….

Officials involved in the negotiations cautioned that broader state support could still be days away. And although the timing of any announcement is subject to last-minute maneuvering, as it stands now the deal would set aside up to $17 billion specifically to pay for principal reductions and other relief for up to one million borrowers who are behind on their payments but owe more than their houses are currently worth. The deal would also provide checks for about $2,000 to roughly 750,000 who lost homes to foreclosure.

One good bit of news is that a spokesmen states specifically that homeowners who take payments will not waive their rights to sue for “improper behavior” in the foreclosure process (note I’d still want to see the terms of any offer. How does “improper behavior” map on to concepts like “lack of standing”?).

Oh, and now we see why Florida AG Pam Bondi was hectoring Harris so aggressively to rejoin the deal:

California’s participation would result in having more money available for many other states, including an estimated $500 million in additional money for Florida.

But the agreement’s terms do not guarantee minimum allocations of mortgage relief by state.

Erm, this is awfully trusting. If you don’t know who gets what, how can any AG ex Florida’s be sure they are coming out ahead? And I don’t understand how the banks can do this:

The settlement, if all states participate, will also include $3 billion to lower the rates of mortgage holders who are current.

Huh? The banks have an explicit obligation to service the loans for the benefit of the certificate holders, meaning the investors. There is NO economic rationale, none, for reducing interest charges to borrowers who are current (unless they are under financial duress and at risk of delinquency/default). This is a bribe to prevent complaints by borrowers who pay on time and are in “beggar thy neighbor” mode.

In addition, there are three serious defects with the “settle and monitor” approach. The first is that the evidence strongly suggests that many securitizations failed to transfer the notes to the securitization trust as stipulated in the PSA. There is no legal remedy for that problem. The servicers and foreclosure mills fabricate documents (allonges, which are separate documents that magically appear with the needed signatures on them, are the preferred device) to fix this problem. The settlement thus somehow pretends the banks can stop these bad practices, when the bad practices are a symptom of a much bigger problem that remains unremedied.

Second is there has been no and is likely still to be no investigation of servicer driven foreclosures. A story in the New York Times yesterday highlighted that issue, when Nye Lavalle, a man of means, tried paying off a mortgage on a family property in the 1990s and discovered $18,000 of fictive fees which he tried disputing with no success. If people with resources find it hard to get the banks to reverse bad charges, even when they fight in court, how can ordinary folks hope to combat this predatory behavior? I’ve seen nothing to indicate that any regulator or attorney general is prepared to look into the validity of bank charges to borrowers.

Third is that the monitoring provisions of the pact look to be weak. In a Reuters article with the Ministry of Truth title, “Mortgage deal would give states enforcement clout,” we have this discussion towards the end:

Under the settlement, the banks will set up internal quality control groups to assess their mortgage servicing units’ compliance with the terms of the agreement, and turn over quarterly reports to the monitor about servicing complaints.

If the monitor concludes the group “did not correctly implement” the reviews, the monitor can have a third party review the work.

If the monitor finds information that a servicer “may be engaged in a pattern of noncompliance,” he can undertake a more thorough review, and impose even tougher standards.

Servicer compliance will be measured through detailed information about unlawful foreclosure sales and incorrect denials of loan modifications, according to the documents.

If the servicer continues to violate any of the terms, any of the states or a monitoring committee can go to court and seek penalties of up to $1 million for the first “uncured” violation and up to $5 million for a second.

Notice that the first level of monitoring is having the banks score their own activity. There appears to be NO procedure contemplated along the lines of normal bank oversight, where regulators can and do make on site visits, demand copies of internal records, and perform their own analysis.

Dave Dayen also found this scheme to be less than convincing:

Joseph Smith, the current banking commissioner of North Carolina, would become the enforcement monitor on the settlement. And states would get some more authority to directly enforce their own consumer protection statutes at the big banks. But get this, the initial measure of whether or not the banks are following the terms of the settlement will come from “internal quality control groups.” In other words, the foxes will guard the henhouse…

And lest we believe that giving states a piece of the enforcement will help, that only depends on whether the state regulators believe in their job description. In fact, a recent NBER study showed that state bank regulators are often even more lax than the compliant federal ones:

“Federal regulators are significantly less lenient, downgrading supervisory ratings about twice as frequently as state supervisors. Under federal regulators, banks report higher nonperforming loans, more delinquent loans, higher regulatory capital ratios, and lower [return on assets]. There is a higher frequency of bank failures and problem-bank rates in states with more lenient supervision relative to the federal benchmark.” […]

Why are state regulators so much more lax? The authors argue that it could be attributed partly to banks being required to pay state regulators assessment fees that are pegged to bank size. As a result, “it is possible that state supervisors maintain a more lenient stance to ensure that banks do not shift out of a given state in search of another state with even softer state regulators.”

Exactly. These are the state meal tickets we’re talking about and the banks hold that over the heads of the regulators.

I wish I could be more optimistic, but this settlement deal has all the hallmarks of yet another win for the banks.

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  1. LeonovaBalletRusse

    YVES, you’re one in a million, a true champion. Thanks for all your efforts. You’ll find that Krugman is equally pessimistic.

    Well, we knew *the best of times* way back when. We’re the lucky ones.

    Time to review Ecclesiastes.

    1. MBR, f

      If a few anecdotes here in DC are indicative the money is flying around right now to grease the way for this agreement — defanging Congress and think tanks, steering various editorial boards, giving commentators the right talking points (“just because it was sloppy doesn’t mean it was illegal”) and hitting the state level poobahs. The TBTF wallets are open. Too bad the MSM doesn’t practice journalism anymore.

  2. Hugh

    This whole process can be summarized in a single word: kabuki. It’s a pantomime for the rubes to cover another sellout. If you were around for the healthcare debate, this is a replay. There you had a long drawn out process, with a few deceptive reformist interludes, but the end product was essentially the same sweetheart corporatist deal that was in the cards from the beginning.

    As with the healthcare debate, its only redeeming feature, and it was a bitter one, is that it allowed us to see who was who and what was what. Harris and Schneiderman do not come out of this heroes or even looking good. Rather they were the actors chosen to string along the moderates and progressives, to keep them invested in the possibility of reform even as the length of the process wore them out and obscured the real contures of the problem and its solution. In this sense, they have acted with greater dishonesty and treachery than even Obama or Miller whom we always knew were in the sellout column. Harris and especially Schneiderman were there to deliver up sound and fury to a process meant from the outset to signify nothing, and worse than nothing.

    1. jake chase

      Well, the whole thing was always going to be a whitewash. We can look forward now to ten years of stagnation. Don’t expect real estate to be moving any time soon. Foreclosures still can’t be done legally. What will happen when the homeowners simply stop paying? I suppose the servicers will keep remitting to the bond holders and drawing on the Fed. It’s sort of like musical chairs. Those having a place in which to live are okay. Those left standing present more of a problem. We will have to wait and see.

  3. Varlam S.

    society cannot sustain such felonious fraud going unpunished.
    when the law is not enforced, there is no justice under the law, when there’s no justice under law, there is only one other kind of justice.
    ergo peasants may soon be reaching for proverbial pitchforks

    1. Woodrow Wilson

      “society cannot sustain such felonious fraud going unpunished.” –

      Looks like the government and financial industry are doing a pretty good job of it. Meanwhile, millions of Americans sit on the sidelines, or peacefully protest & write about outright larceny (again).

      Rule of Law indeed.

      1. 2little2late

        This is going to go way beyond pitchforks. Nearly a half decade ago when Paulson ran screaming into the chambers yelling about martial law and asking where the people’s checkbook was, he threatened some nasty things or else. Save who against what at what cost?

        The threatened tanks weren’t proverbial only. The blunt, less dangerous end of those tanks would have/will be positioned snug up against the capitol and the NY ivory towers. The sharp pointy “thunderstick” end would/will undoubtedly be pointed/ing at the citizenry.

        They’ve made it abundantly clear that their mission is to save their business model at all costs. They continue to this day to bless MERS as the bailout king for the banks on the mortgagor side of the equation, handing over houses by 100% fraudulent means. The fatal defect in the MBS is the ordained bailout on the investor side, providing yet more funding through illicit means.

        And the statute of limitations ticks while the crimes are laundered. It is indeed the perfect crime.

  4. Expat

    We have met the enemy and he is us.

    Seriously, I think we should blow up the planet before we spread.

    1. psychohistorian

      There are those that think that the same folks bringing you this “civilized” society have within the past year brought us our demise in the form of nuclear winter.

      We borrow the planet from our grandchildren. That was the philosophy of the natives we white folk stole this country from. It has always made more sense to me than the religious excuses for planet abuse.

      Cosmosian history will not treat our species well, I fear.

      1. Susan the other

        Another way to look at it is that our children and descendants will be/are much older than we are in both the age of their DNA and their accumulated knowledge. We would be foolish to go against them by trashing their planet. We should consider ourselves the children and learn to control our impulses.

  5. Middle Seaman

    Although I totally agree with the post, it is important to stress that reality is favorable to the banks. Obama made the banks stronger financially and politically way more than ever before. AGs have limited staff and other resources and are not able to get much more than spotty investigations into the banks’ atrocities. We just don’t have the tough leadership capable of twisting arms to maximize the benefits for the borrowers and the country. And finally, the country desperately needs to get over the foreclosure crisis and to get some compromise and amnesty so we can turn a new page.

    Beyond Obama’s prostration in front of the banks, the AGs treachery and the limbo state of many properties, the best settlement seems to be capped at about $50 billion and letting the banks get away with “some” murder.

  6. Brooklin Bridge

    It’s odd that Matt Taibbi has remained completely silent since posting his inverted fish hook — that he apparently swallowed with line and sinker — on the 28th while Yves and David, among others, pick this fiasco apart for what it is.

  7. jo6pac

    Nothing new Main Street loses and banksters win.
    Everything is on schedule, please move along.

    Thanks Ives

  8. Norman

    What will the fate of those who turn their back on the people for political gain be, especially if the “O” loses? Into the toilet perhaps. Selling out for those few pieces of silver. I wonder just how long the Generals are going to wait?

  9. Phoebe Loosinhouse

    1.”internal quality control” say no more. That always works so well, doesn’t it? How well did that work for Fannie Mae when they got the report that Gretchen Morgenson wrote about on Sunday?

    2.Who anywhere believes seriously that state monitors will do the job when the banks have already shown the willingness to pull out of states where enforcement is inconveniently rigid?

    3.”And states would get some more authority to directly enforce their own consumer protection statutes at the big banks.” How exactly? More authority to whom authorized by whom through what vehicle?

  10. Guy_Fawkes

    In my perspective, for AGs that have criminal prosecution possibilities, I wouldn’t sign on to this deal. However, in WA, our AG does not have any criminal prosecution abilities and this settlement may be our best opportunity to get more than we could get otherwise.

    And, my AG still tells me that what is being reported regarding the deal is not the real report of what’s being negotiated. I am tending to believe him.

  11. Lambert Strether

    Now we also see why Obama never bailed out the states. They’re desperate for money, and will take any crumbs on offer.

    We also see the advantages of making it hard for people to move their 401(k)s; they, and the investors who manage them, present a single solid target for looting. (There’s no possibility of “move your money” for 410(k)s, more’s the pity.)

    I really do think we’re looking at a “long con” here, and not an unfortunate series of events. Call me foily!

    1. different clue

      If you think your 401k is going to be hollow-out looted, and empty-shelled for your retirement; you can always cash it out and pay the taxes and the special premature cashout penalty. ( A ransom for de-kidnapping your own money).

      You can then invest your de-kidnapped de-hostagised money into personal survivalism if you think you are confident and informed enough to know what that is.

  12. brian

    kamala’s whole so called public career has been political
    short term girlfriend to willie brown
    disaster as sfda replacing an equal disaster with the help of course of ethinic/racial politics in sf and of course willie
    now ag and wants to be guv
    her principal opponent gavin newsome a pretty boy but more moderate

  13. Guy_Fawkes

    Keep in mind, this deal does not include any wrong-doing regarding the Trustees…..so wondering what is happening on that front???

  14. different clue

    Well . . . people could still resolve to get all possible revenge on Schneiderman and Harris over the decades to come.
    Giving all possible support to their political opponents and so forth in any election they might run in.

    I am just an ill informed layman. Since Yves Smith and some of her guest posters and commenters are experts in this area, their advice is surely best for making last desperate efforts to derail this deal. I will note as others have noted before that these things are made difficult precisely in order to shelter and disguise the crimes-in-planning and crimes-in-process.

    I notice the same complexity in the whole area of homeownership and home owership in general. “Deed”? “Note”? “This”? “That”? If MERS was invented to abort the registration of millions of “deeds” at tens of thousands of county courthouses, so that those “deeds” would be nowhere-registered and nowhere-in-existence; so that no theft could be proved any more than “ownership-to-begin-with” could ever be proved; would it make sense for house-inhabitors who think they “own” or “will own” the house they inhabit to got to their county courthouse just on principle and see if the house they inhabit is described in any sort of “deed” which is “registered”?

    Is there any way for millions of house-inhabiters to force whomever “holds” their “mortgage” to retro-register the “deed” at the county courthouse?

    Are prospective home-buyers prepared to refuse to “buy” a house unless the “seller” can prove that the “deed” or whatever is physically currently registered as being in existence at the relevant county courthouse? Could such a movement of “No Deed? No Sale!” prospective home-buyers exterminate the market in illegitimately un-registered deedless houses by refusing to buy any such a house from any such a seller?

    And if anyone wants to accuse me of not understanding the nuances and details of an “evidence of ownership” system which was deliberately designed on purpose to prevent me from understanding it, let all such people explain it all so that someone who got straight As in college history but never took a course in Crime-How To Do It can understand your explanation.

  15. Brady Hicks

    Hello Kamala Harris,

    Please do not involve our state of California in the so-called 50 state mortgage settlement. This settlement is an effort by the administration to paper over over the massive contribution mortgage malfeasance played, and continues to play, in our ongoing economic malaise.

    The estimated settlement funds of $17-25 billion are paltry in contrast to the damage wrought, and amount to nothing more than a buy-off from the financial institutions who continue to prove they are above the law in this country.

    I beg you to insist upon continued investigation into this matter, with a goal of justice for both the victims and perpetrators. A politically expedient settlement such as the adminstration is pushing accomplishes little even nominally, while guaranteeing that the same conditions that caused the original problem are allowed to persist. Do not include our state in this band-aid fix for a gaping wound.

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