On March 13, I read the foreclosure fraud settlement documents and noticed that the banks would be eligible to get credit for their penalty for performing routine actions, like waiving deficiency judgments, bulldozing or donating homes. These are the sorts of things banks do all the time, and yet they could comprise up to one-quarter of the total credits.
Two full weeks later, the New York Times got around to reading the documents and noticing the same thing.
In February, JPMorgan Chase donated a home to an Iraq war veteran in Bucoda, Wash., and Bank of America waived the $140,000 debt that a Florida man still owed after the sale of his foreclosed home. Over the last year, Wells Fargo has demolished about a dozen houses in Cleveland.
Banks do things like this — real estate transactions that do nothing to prevent foreclosure — all the time. But beginning this month, they can count such activities as part of their new commitment to help people stay in their homes [...]
For example, the banks can wipe out more than $2 billion of their obligation by donating or demolishing abandoned houses. Almost $1 billion can be used to help families that have already defaulted move out.
“The $17 billion is supposed to be the teeth of this settlement,” said Neil M. Barofsky, the former inspector general for the Treasury’s bank bailout fund known as the Troubled Asset Relief Program. “And yet they are getting all this credit for practices that they do every day.”
The paper of record, just 15 days behind schedule.
But who am I to complain? This is all true. Under the guise of a penalty, the banks can continue normal operations and finish off their obligations.
The Times had to go to the principals and ask how this could be legitimate. And they got some marvelously entertaining answers. Patrick Madigan, Tom Miller’s Man Friday, claimed that the settlement “was meant not just to prevent foreclosure,” and that just because the banks perform these activities in the normal course of business doesn’t mean they’re performing them enough. Nice try. And Miller has the gaul to say he’s just as tough on the banks as anyone.
But Mark Zandi really takes the cake here:
The government officials who brokered the agreement estimated that a million borrowers would receive relief under the $10 billion-plus for debt reduction and another $3 billion to help borrowers who are current on their mortgages refinance at lower interest rates. Mark Zandi, the chief economist at Moodys.com, estimates that the total will be closer to 700,000 borrowers — 250,000 for refinancing, and 450,000 for principal reduction. That is partly because there are homeowners who owe so much more than their homes are worth that even the deal’s average aid of $30,000 or so of principal reduction will not make them less likely to default.
“After looking at the data in detail, I’m beginning to wonder if you’re going to find enough homeowners where principal reduction works in a meaningful way,” Mr. Zandi said.
For that reason, he said, it was necessary to give banks credits for other types of activities.
So because the settlement is so small and pathetic, they had to use it on small and pathetic things. That’s basically the argument. We have $700 billion of negative equity in this country, and the average home in negative equity is $54,000 underwater. The idea that you can’t find enough homeowners for principal reduction is absurd. You only can’t find enough because the settlement didn’t include a decent monetary penalty.
And then there’s Shaun Donovan, still peddling his “once you pop, you can’t stop” argument, claiming that the banks will get a taste of principal reduction and love it so much that they’ll just start writing down everybody’s loans.
Madigan points out that “Many of the options on the menu were initially suggested by the states or by the Housing and Urban Development Department.” Not helping! And anyway, he didn’t have to tell us that. In this excellent interview with former FDIC head Sheila Bair for National Journal, she explains that she tried time and again to get the Administration to deal with housing in a serious way, and they just wouldn’t devote the resources.
NJ: You have been critical of the administration’s efforts to address the housing crisis. What’s wrong with its approach?
Bair: They had academics and theoretical economists designing it who may have been well-intentioned, but didn’t have any practical understanding of the market or servicers or operationally what would make sense. Everything the administration has done has only helped at the margin. The timidity and incrementalism have been real problems. They just don’t want to spend money on it. They are conflicted.
NJ: You warned against the incentives for industry that the administration created around the Home Affordable Modification Program, which provides payments to lenders and investors over time for successfully modified loans. Why?
Bair: You get what you pay for. Trying to do this on the cheap just didn’t work and the complexity of the program, if anything just compounded the problem. The bottom line is the financial incentives were not enough. The program was too complicated and the sense of urgency we saw, and I think that frankly the president saw, I don’t think translated into a program that could be operationalized. They were relying on a voluntary program with weak economic incentives and the big servicers were not putting the resources that were needed into these big servicing operations.
So it’s no surprise that even in the case of a penalty, when the banks have massive civil and criminal liability, this group couldn’t design anything with teeth.
…I should add that the NYT editorial board had a very strong opinion opposing the settlement on March 18, but it didn’t address this specific issue.




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David I have just learned that you used to do stand-up comedy. I’ve commented previously about your deft timing, which you display on a regular and consistent basis.
Now this post, is another in that long series of truly excellent posts, that I sincerely hope you, when you find the time, which, in your case seems to have an elastic quality about it … as you do more serous study and writing than anyone I’ve ever encountered except Marcy Wheeler, shall compile into book form.
For some reason, your posts impel me to say, in as many ways as possible;
Pulitzer for David Dayen!!!
The Rule of Law for everyone.
It may well be that neither one may happen without the other, but if either are to come about they, sure as Global Climate Change, are connected.
DW
Hey Grey Lady: Welcome to the party. I’m assuming you brought party favors and appetizers, right?
This is the work of their new Managing Editor. Rip Van Winkle. :-(
The New York Times: All The News That Was Fit To Print, A Very Long Time Ago. AND NOW, with a format that feels like USA Today.
I loved Yves piece about Sheila Bair. One of the things I find fascinating is that the people with the clear eyed understanding of both the problems and the solutions, from early in the crisis, are so often women. Think about it : Liz Warren, Kathleen Porter, Lynn Syzmoniac, Sheila Bair, Yves Smith. All of them were willing to wade into the weeds and deal with the real documents instead of dealing with spin ABOUT the documents.
Idiots like Paulson and Geithner and Miller, relied on what banks told them about the documents, instead of going to the actual documents to see what was really going on.
And, yes, before you all jump down my throat, there were some men who figured it out early. But I wonder a little bit, if the people advocating for real accountability and for real solutions in the WH had been middle aged white men who had been muckety mucks at TBTF banks at some point in their careers, instead of women who had been in the accountbaility and education feilds for most of their careers (and didn’t have the glaring conflict of interests that all of Obama’s cheif’s of staff have suffered from) would the aforemention CoS have allowed those accountability arguments better access to the POTUS.
Just pointing out, men with huge conflict of interest advocated dumb as dirt ideasbased on braod assumptions and accounts from banksters that were accepted by POTUS.
Women with no conflict of interest advated sensasble idea based on actual hard data and actual experience and expertise that were ignored by POTUS.
Gatekeepers for ideas (CoS) were also men with huge conflict of interest on this very topic.
Interesting coincedence n’est pas?
[apologizing in advance for the typos]
Hmmmm.
Way back in 2008 when the TARP plan was put into place in a quick hurry I remember thinking: Why don’t they just deem all those outstanding mortgages paid in full?
Oh, crap! I didn’t just think it. I said it too! Woulda saved the taxpayers a hellava bunch of trillions.
I would just like to say, that David is a way better journalist than any NYT writer. I have read more of his articles in the past couple of months than any NYT in my life time.
DW, you’re singing in the wind. For Dave to get any award would show the shallowness of the print and TV media. If you are an analyst on the innertoobz, you can’t be considered serious and your insights are based on whim. Reading and understanding the nonsense banking fraud settlement and showing how bad it is counts for nothing. David should have been listening to the spin coming from the Beltway and caught the ‘real’ story.
Hey, as long as you keep making such astute observations, i dnt car hw bad yo typ.
I think both of us have become better typists since the old Libby daze.*g*
oops,
Meant as a humourous response to Cynthia.
LOL!
David has more expertise and analytical skillz than any TV pundit or so-called camera ready “specialist”.
“The banks.” Why not start calling them “The Looting Operation”?
Judith Miller really points to the real function of the NYT.
For better or worse, The Times bears responsibiliy for inflicting me on FDL, due to the fact that I realized way back in the Bush first term that FDL was telling me the truth on difficult issues and stories weeks or months before I would ever see ANY mention of those stories in the Times, the other half-dozen papers I read every day, or any TV stations. My work required me to actually know what was going on, sooner rather than later.
Screw your modesty, Cynthia. We all know you belong on that list of prescient females, maybe even first on the list for your amazing work on the mortgage issues. Hey, somebody, shine a spotlight on this modest woman over here!!!! ((((((Cynthia))))))
I wish there were those that were 100% correct 100% of the time – of either sex.
David is amazing – amazing production and he has an amazing “being correct (and early)” percentage – and indeed you are up there also.
But much that is sold as fact is from info given out by those with an agenda – the deposit bank enemies in this case being the hedge funds that wanted to drive down their shareholder value so as to buy them up in a fire sale (indeed this mess started when Greenspan green lighted the investment banks/hedge funds jumping into the mortgage market then dominated by the deposit banks in the 90′s – and Greenspan looking the other way when it got nuts with S&P/Moody’s ratings in 2000/2001 with diverse geography and tranche choice replacing ability to pay back, and when the hedge funds and investment banks claimed EU rich folk demand justified liar loans to up volume in 2003/2004/2005/2006).
Much of what Yves (Susan) has on her site is true – much is based on near zero actual data – and almost all of it has a point of view that seems to come from the hedge fund world. But one needs to make your own evaluation – indeed do not accept mine as I am tainted with 45 years in Finance industry management and as much as I may try to be unbiased I am sure I fail quite often.
David and the ladies you mention have the broad outlines of the situation spot on – digging deeper the hedge fund view has a lot of truth – it is in the weeds that folks like myself find data differences that raise questions. A nice Occam’s razor is always “Who profits?”.
That’s odd, “Miller” doesn’t sound French!
Just a little OT, but related to who is worth reading or listening to for facts or analysis. Way back when we were making war in VN, there were almost daily reports of body counts. After some battle, our govt would report on the number killed and wounded, especially the NV troops. A couple of days later the word on casualties would be given by NV. The numbers were always different; our govt would exaggerate the NV numbers and downplay any US. The NV would reverse the outcome. About two weeks later, the Russians would give a much more accurate count on both sides. I know that the Russians were right because the US govt would quietly revise the figures that they had given. You just have to figure out who to trust for analysis. David is right there, others eventually follow or choose to look foolish.
Heh, I was just going to comment on this. DDay, I’m sure you know this (it sounded like the type of homophone-typo I do all the time), but the word you wanted there is gall (“bitterness of spirit,” per M-W) not gaul (French).
papau, I’m interested to know why you seem not to like Yves. You hint around that there is something fishy about her, but you never come out and say it. You also keep throwing her name out as though she is being devious. She chooses to use the name Yves Smith, and, I think, we should respect that. I have no idea what your name is, and I don’t care, really; that is your business. If, however, you want somehow ‘out’ Yves, for not being transparent, then I believe it is incumbent on you to open yourself up. We need to know your name and of what devious thing, of which you have proof, that Yves is guilty.
LOL
Think about it, though. All of POTUS’s CoS are have been TBTF guys at some point in their lives. And they are the gatekeepers of what ideas got heavy rotation to the POTUS ear.
Cynthia –
Deft observation. There was a time when women were the moral backbone of many relationships, and thus of the country. I remember when Hugh Sloan was called to testify before the Watergate Grand Jury. His wife told him that if he lied, she’d leave him. He told the truth.
Another interesting tidbit is the Time Person of the Year trio from 2001 — the three women whistleblowers over Enron, the hijackers, etc.
Yep, but the women keep getting the Cassandra treatment. Nobody listens to them while there is still time to avert disaster/fix things.
Well, Cynthia, maybe in part because these predators went after women, minorities and the elderly.
When I bought my house, I went to three major banks in my city. Each one of the major banks told me I would need a high interest loan because there was only one line of credit. They said that because I was a single woman buying the house without a second income, i would need a sub prime loan. I didn’t go, back. I spent a year continuing to work on my credit, increase my income hoping this would help. I knew that what they were saying seemed “wrong” but all three banks in all their intimidating big desk in the office glory told me the same exact thing. It didn’t occur to me at the time that this was wrong. I felt “shame” immediately. I felt like I was “less than”. I bought it. (sorry to say)
I went away for a year, and when my landlord decided to sell the house I was renting…suddenly, within two weeks of my ex launching a custody battle over my two teen age boys that would move them to a neighboring state over “lackluster grades”…I went back to buy the house my land lord was selling. I got the same argument. But I used a broker (through a friend) and they never used the word sub prime. This was back in 2001…I didn’t really know what it was, but the other banks had used it the year before. I thought when they weren’t using that word that I was getting a different kind of loan. I made sure it was a 30 year fixed. They said it would have a higher interest rate, but never said the word sub prime nor as it written on any contract that I read.
My boy friend at the time said it all felt shady, that people’s hands were shaking and he couldn’t figure out why. I thought he was being paranoid. I paid my payments on time, never had a lick of trouble, until my ex, after losing the custody battle quit paying his 1000 a month child support suddenly out of the blue. My saving was gone from fighting the custody battle and eventually after a year of fighting to make the payments, I was two months late. This is when I began to realize what had happened and all the shenanigans began.
I think I was channeled into the sub prime loan soley because I was a single female.
Way to go DAVID!! Great article and reporting as always…and yes Cynthia, I have been listening to women on this for a long time…and William K Black.
I am a man.
And while I agree that much, if not most, of the truth being told on these subjects is being told by women, I don’t agree with your implication that it’s simply because these female heroes simply have clearer vision.
You did point out the conflicts of interest held by the men, but I would contend that those conflicts are simply a matter of deep corruption.
Many of the actions of Pelosi can be similarly explained.
Those who are outsiders are often women, and good for them! But you also have folks like our own DDay, who haven’t been coopted. I fear that as more women find success and power in politics, there will be more of the routine corruption we have seen from the males.
You were channeled into that subprime loan because they could. Because they made more money off you. Because the banks are thieves.
My heart goes out to you and everyone else in your position.
Add me to the list of admirers for the women speaking out and trying to get the establishment men to listen!
Regarding deficiency judgments, I hope that we will start seeing more of those being waived on Freddie Mac loans because of this notice in their February 15th Bulletin 2012-5:
“DEFICIENCY FROM SHORT PAYOFFS AND DEEDS-IN-LIEU OF FORECLOSURE
We have updated the Guide to reinforce the requirement that the Servicer, for itself and on behalf of Freddie Mac, must waive all rights to pursue payment of the remaining balance owed by the Borrower under a Freddie Mac-owned Mortgage for all approved short payoffs and deed-in-lieu of foreclosure transactions that have closed in accordance with the Guide and applicable law.
Sections B65.41, Closing, Reporting and Remittance Requirements, and B65.48, Closing, Reporting and Remittance Requirements, have been updated to reflect this additional information.”
This unfortunately does not cover those who have lost their homes through the courts, but should help others. Their Guide is an interesting thing if you know how to read it!