By Tanya Dennis
Last week Attorney General Kamala Harris signed what was touted as a historic commitment to California that will benefit hundreds of thousands of homeowners hardest hit by the foreclosure crisis.
Upon closer investigation, economists, CREDO, other grass-root organizations and others see the settlement as a “sell-out” rather than a settlement.
President Obama pressured the Attorneys General to sign an agreement that is totally inadequate. Senator Dick Durbin said that the Wall Street banks own politicians in Washington D, .C. and it appear that his observation is true. Compared to the 1998 tobacco industry multi-state settlement of $206 billion, equivalent to $350 billion in today’s dollars, this multi-state deal is bush league by comparison.
In the final outcome, the banks will only pay out $5 billion in actual currency. Roughly $17 billion will be credit for principle modifications which will affect investors, pension funds, insurers and 401(k)’s.
The settlement will not help borrowers whose loans are owned by Freddie and Fannie Mac who own 62% of the loans in California, and although Wall Street banks fraudulently and illegally foreclosed on 500,000 homes worth hundreds of thousands of dollars, the multi-state deal lets the banks off the hook by paying those homeowners $1,500 to $2,000.
The banks have been allowed to settle for $25Billion when the nation’s collective negative equity is nearly $700billion.
Yves Smith, financial analyst and founder of “Naked Capitalism” states the settlement will actually benefit the banks “now that a price for forgery and fabrication of documents has been set at $2,000, less than the price of title insurance. While providing aid to a relatively small portion of homeowners who are delinquent and facing foreclosure, it’s a great deal for the banks because no servicer will go to jail for forgery.”
Many fear that enforcement will be a joke as the first layer of supervision will be banks reporting on themselves. Historically, according to New York Attorney Tom Adams, “Servicers cheat in all sorts of ways to reduce their losses.”
Despite U.S. Trustee’s officers finding undisputed evidence of significant servicing errors in bankruptcy related filings and the AG’s/Fed investigation revealing 62% of documents had errors with evidence of widespread abuses such as servicer driven foreclosures and looting of investor funds, thus far no serious probe has been undertaken and servicers and banks have suffered no real consequences for their abuses.
Paul Diggle, property economist at Capital Economics in London suggests the notion that the multi-state settlement will not help turn around the American Housing Market.
“Forgiving 17 billion in principal is a drop in the Ocean. Given that close to 11 million borrowers are underwater on their loans to the tune of 700 billion in total. $17billion in write-downs will address about 2.4 percent of the total negative equity across the nation.”
The banks received a $700Billion taxpayer’s bailout and $17 trillion in loans by the Federal Reserve. Economist Yves Smith says that, “this settlement is yet another raw demonstration of who wields power in America and it isn’t you and me. It’s bad enough to see these negotiations come to their predictable sorry outcome. It adds insult to injury to see some try to depict it as a win for long suffering, still abused homeowners.”