National Mortgage Settlement is a Big Fat Pig in a Poke

pigpokeThere are new revelations on the 50 state mortgage fraud settlement. From The Financial Times:

A clause in the provisional agreement – which has not been made public – allows the banks to count future loan modifications made under a 2009 foreclosure-prevention initiative towards their restructuring obligations for the new settlement, according to people familiar with the matter.

The existing $30bn initiative, the Home Affordable Modification Programme (Hamp), provides taxpayer funds as an incentive to banks, third party investors and troubled borrowers to arrange loan modifications.

The settlement is estimated to be $40 billion. The fines are only $5 billion of this, which implies U.S. taxpayers are on the hook, not the banks, for $30 billion. So instead of getting any justice that using people's homes, their shelter and main life investment as a gambling chip and paper chase game is wrong, once again we get to pay for financial folly while banks pocket the cash.

Naked Capitalism has put up a top 12 list of things wrong with the foreclosure fraud settlement. Here's reason #1:

We’ve now set a price for forgeries and fabricating documents. It’s $2000 per loan. This is a rounding error compared to the chain of title problem these systematic practices were designed to circumvent. The cost is also trivial in comparison to the average loan, which is roughly $180k, so the settlement represents about 1% of loan balances. It is less than the price of the title insurance that banks failed to get when they transferred the loans to the trust. It is a fraction of the cost of the legal expenses when foreclosures are challenged. It’s a great deal for the banks because no one is at any of the servicers going to jail for forgery and the banks have set the upper bound of the cost of riding roughshod over 300 years of real estate law.

There doesn't seem to be any accurate statistics on the real number of foreclosures at the national level. We have RealtyTrac but some say these numbers are inflated. Calculated Risk created his own estimates and came up with 815,000 completed foreclosure sales for 2011 while 2,203,000 homes were in some sort of foreclosure process. Calculated Risk:

Given the number of loans either seriously delinquent or in the process of foreclosure at the beginning of the year, the number of completed foreclosure sales in 2011 is almost absurdly low, reflecting the complete screw-up of the mortgage servicing industry, and the resulting dramatic slowdown in foreclosure resolutions. As of the end of October, 2011 LPS estimated that there were 1.759 million seriously delinquent loans with the average number of days delinquent at 388 (compared to 192 days in January 2008), and there were 2.210 million loans in the foreclosure process that had been on average delinquent for 631 days.

Foreclosures for 2012 are expected to hit 1 million or a 25% increase from 2011.

In Q4 2011 there were 132,474,00 housing units. The national homeownership rate was 66% in Q4 2011, or 75.32 million owner occupied homes. Around the height of the bubble, 2004-2006, homeownership rates were 68-69%.

home owner ship rate

By Calculated Risk's estimates, there have been 3.75 million foreclosed homes sold at auction from 2008 until 2011. Foreclosures also rose 8% in January 2012. That's a lot of people who lost their home in foreclosure.

Just the other day yet another report showed 84% of foreclosures in San Francisco were fraudulent.

At this point even the MSM has caught on this is settlement is no deal for homeowners or will punish the banks. The Wall Street Journal calls it a shakedown of the law and even the New York Times is realizing the settlement for mortgage fraud won't do much except further line the pockets of the big banks.

Believe this or not, the actual settlement terms not even been released yet. Literally there is a website with coming soon on it. Nice trick. Make a huge public relations and media campaign without releasing the actual agreement and settlement term details. Seems this time the bait and switch didn't quite work out with the Financial Times and many others getting the backroom deal between the administration and banks this settlement really is.



Mortgage Settlement

The mortgage settlement is like a rape victim being made to post bail for her attacker: