You would think that an $8.5 billion settlement would be enough to make up for most bad behavior. But in the case of the recent settlement federal regulators reached with ten of the nation’s largest mortgage servicing companies, including well-known banks such as Bank of America, Citibank, JP Morgan Chase, and Wells Fargo, I’m not so sure that $8.5 billion can possibly be enough of a punishment to fit the crime. When it came to mortgage lending and the all-too-frequent subsequent foreclosure, these banks and lending entities broke all the rules, victimizing millions of consumers and destabilizing our economy as a whole. Their activities included such nefarious activities as predatory lending, in some cases borrowers defaulted only months after taking out what was clearly an unrealistic mortgage, robo-signing, which involved faking documents and lying to the court in order to sidestep legal protections for homeowners, and non-existent record keeping, resulting in the loss of the most basic documents so that homeowners were left not knowing who exactly owned their debt anymore, to name a few of the more evil practices.
Why would banks, supposed pillars of the community, do this? I thought it was the mob who was supposed to run roughshod over people’s rights, not the highly regulated banking community. These banks and mortgage lenders were caught up in a frenzy; each lender feeling pressure to match the lending rates and profit percentages of the next one. But “everyone was doing it” is no excuse; this type of illegal and highly detrimental activity is unacceptable. In this case, it helped spark a major recession that has affected every single person in this country.
The settlement was reached between ten mortgage servicing companies and the Office of the Comptroller of the Currency (“OCC”) and the Federal Reserve Board. Of the total, $3.3 billion will come in the form of direct payments to eligible borrowers and $5.2 billion in other assistance, such as forgiveness of deficiency judgments or loan modifications. The good news is that much of this settlement money will end up in the hands of harmed consumers relatively quickly. But the New York Times points out the less-than-thrilling news that this settlement was reached as an alternative to what could have ended up costing these companies much more. The huge mortgage servicing settlement reached in February of 2011, $26 billion involving 49 state attorneys general, the DOJ and the Department of Housing and Urban Development, already provided for loan reviews to help wronged consumers. The previously agreed to process, mandatory review of loan files upon the request of a borrower called “Independent Foreclosure Review”, was expected to take much longer and cost much more than the now-agreed to $8.5 billion settlement. So in some ways, this is a “win” for the mortgage servicing companies, replacing the uncertain with the certain, likely lower than the uncertain amount would have ended up amounting to.
How does one stop something like that from happening again? By pushing hard on settlements like this one and making a clear statement that banks and other entities cannot get away with behavior like this. In this case, the banks lied to the courts. They faked documents and submitted them, under oath, to courts so that they could foreclose on homes without having to worry about pesky things like consumer rights and legal processes in place to protect those consumers. That is really, really bad stuff. While $8.5 billion is a significant “win” for harmed consumers, only time will tell if it is enough to prevent such behavior in the future.