Matt Taibbi starts off positively exultant when talking about developments in the foreclosure fraud settlement, particularly on the narrow release of liability, but I’m interested in what happens after he gets his head out of the clouds:
Let me clarify something, for readers who might mistake my meaning here. Robosigning is not a small offense. It’s not a “clerical” issue. It’s a mass-perjury issue, a tax evasion issue, a contractual fraud issue, and it’s a criminal conspiracy issue (the banks’ highest executives were engaged in planning it) and it resulted in millions of errors that resulted in untold numbers of premature foreclosures.
Robosigning had a profound and immediate impact on large numbers of actual human beings, and I don’t want people to think I’m dismissing it as unimportant. I probably also shouldn’t celebrate news like this until I see how the actual deal looks, what wording is used to narrow the deal’s purview, how homeowners and other victims will be compensated, what will be done to prevent it in the future, and so on [...]
When I first heard about the foreclosure settlement, I thought it might contain a broad waiver for everything, including the tax evasion issues, the fair lending issues, securitization, and all the other things on that list above. If they did that, that would be TARPx10. My only point about this deal is that it appears to have been effectively negotiated down from a bloodcurdling outrage to whatever it is now, which is probably something far less than that: it may still be a serious underpay, but it’s not the unreal, criminal giveaway it was originally meant to be.
Taibbi has kind of bought the argument that the robo-signing was a smaller part of a bigger fraud in the securitization markets, which is true. That doesn’t mean that a settlement that allows you to go after that poisoned tree by only giving up the fruit is in any way equitable. That’s the point of California Rep. George Miller, a key ally to Nancy Pelosi:
Democratic Congressman George Miller of the East San Francisco Bay area says he’s “proud” of Harris for leaving negotiations that aren’t in the state’s best interest. And he says any agreement has to be transparent.
“Whatever settlement they have has to go out to the public for a week, for a period of time, where it can be commented on,” Miller said, “because this represents the largest decisions about people’s homes, their equity, their assets and their worth.”
There is a path to a settlement that would at least be somewhat strong, and it includes a whole lot more elements than a narrow release of liability, as Abigail Field explains. It includes serious enforcement with an independent court-appointed monitor that has actual authority and the ability to impose penalties. It includes real nationwide servicing standards that include an auditing of the servicing software and account records to check for systemic fraud, rather than just a promise not to do the bad stuff ever again. And it includes principal reductions where the monitor, not the banks, makes the decision on who gets relief and at what amount. The banks have to pay the fine here, not pass it on to investors. Furthermore:
Regardless of how the DE’s MERS lawsuit is resolved and liability for its past actions addressed, the settlement should include an agreement to stop using MERS on all loans made after the date of the settlement. We need to limit the damage.
The settlement has to deal with the fact that most mortgages’ documents are FUBAR. ‘Robosigning’ isn’t simply about signing documents in a funny way; it’s about creating documents the banks don’t have because they didn’t do their job right at the outset. Why are they creating the documents? So they can win foreclosure cases. That’s obstruction of justice. When you don’t have the evidence you need, you’re not supposed to just make sh-t up. But the servicers are, systematically. And it’s not like they’re doing things they have the right to do, just late. For a variety of reasons these documents are just fraudulent. They’re creating documents in the name of companies that have long since gone out of business, for example.
Bottom line: You can’t solve “robosigning” simply by slowing the process down long enough for people to review newly-minted documents before submitting them. Similarly, if the database the reviewer is checking the numbers against is wrong, the review doesn’t help either. How to resolve the FUBAR documents situation? I don’t know. All I know is that the topic has to be dealt with head on.
This is of course what regulators probably don’t even want to wrestle with. The broken nature of the land title system in the United States is a can of worms I think these people aren’t legitimately interested in opening.
But the larger point, made by this depressing FAQ out of USA Today, is that even with less liability release, the settlement reflects a small pittance of money for borrowers, which the banks won’t even pay, and the whole thing is at their discretion, so the benefits remain murky. If that’s something to cheer about, I must be in the wrong soccer stadium.