Cogito Ergo Non Serviam

Five Major Banks Cut Deal on Mortgage Abuses

Five of the biggest mortgage lenders in the US have cut a deal with the Feds and 49 state attorneys general in a settlement over lending abuses. Bank of America Corp, Wells Fargo & Co, JPMorgan Chase & Co, Citigroup Inc. and Ally Financial Inc. will cough up around $25 billion in total to get a pass on civil government claims against them for faulty foreclosures and mishandling of loan modification requests. This is not bad, but there were numerous crimes committed, and people need to go to jail.

According to Reuters, "Under the settlement, roughly 750,000 borrowers who lost their homes to foreclosure between 2008 and 2011 can expect to receive a $2,000 cash payment. The banks would also provide $17 billion in principal reduction and loan modifications for delinquent borrowers who are facing foreclosure. The deal includes $3 billion to help borrowers who are current on their mortgage payments but unable to refinance because they owe more than their homes are worth. Further, banks agreed to new servicing standards, including stricter oversight of foreclosure processing and a single-point-of-contact for borrowers."

The economic impact of this arrangement will do little to get the housing market in the US sorted out, and by extension get the economy booming again. While about a million homeowners are going to benefit from reduction of the principal they owe, about ten times that number have a mortgage greater than the value of their home (so-called underwater mortgages). Families that lost their homes will probably appreciate the $2,000 cash payment, but a couple months' rent won't make up for the theft of their homes.

The term is "theft by fraud" and what these banks did was clearly illegal in numerous cases. The Washington Post stated, "The banks faced a public uproar in late 2010 when it became clear that the legal paperwork they had filed in numerous foreclosures included flawed and fraudulent documentation. In many cases, because of the way in which loans were hastily packaged and sold to investors, banks had difficulty verifying ownership of the underlying mortgages."

USAToday reported "Some [bank] employees signed papers they hadn't read or used fake signatures to speed foreclosures -- an action known as robo-signing." In other words, they forged documents and those documents were used to throw people out of their homes through foreclosure. If a single person had done this, it would be bad. It was, however, standard practice and even unwritten bank policy. That means it was a conspiracy, the practice violated the RICO Act. In addition to the usual penalties for fraud, forgery and perjury, the banks should be on the hook for triple damages as per RICO. However, that would destroy the US banking system, so perhaps, this settlement is in the public interest.

Nevertheless, individuals who committed these acts should face jail time. Bankers awarding themselves huge bonuses despite losing billions is bad, but unethical is not the same as illegal. What happened in robo-signing was illegal. Faking a signature on a legal document is against the law, and it is not an arcane legal point. Even a school kid knows trouble follows from putting someone else's name on a piece of paper. The only way to ensure this does not happen again is to arrest, try and jail the forgers.

© Copyright 2011 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Ubuntu Linux.



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