California Atty. Gen. Kamala Harris, left, is joined by Nevada Attorney General Catherine Cortez Masto during a press conference to announce a joint investigation alliance to assist homeowners who have been harmed by misconduct and fraud in the mortgage industry. (Los Angeles Times / December 6, 2011) |
After months of talks, negotiators for five major banks, the Obama administration and most state attorneys general are poised to settle claims stemming from a probe of "robo-signing" — the banks' widespread practice of rubber-stamping some of the paperwork involved in a foreclosure. It's a settlement, so by its nature neither side gets everything it wanted out of the deal. But it offers relief now and in the near future for millions of borrowers, and the precedent it sets for loan modifications could help millions more. That's why California Atty. Gen. Kamala Harris, who's been reluctant to sign on, should do so.
Consumer advocates have been lobbying against the deal since late last year, arguing that the damage wrought by lenders was far larger than the amount the banks had offered to settle the claims against them. Harris also expressed concern that the banks sought to be relieved of liability for misdeeds that hadn't yet been investigated, and that they faced little penalty for not complying with the deal.
Supporters say the final version of the settlement is more clearly limited and more enforceable than the terms floated last year. The deal covers only civil actions by the states related to the issuance and servicing of loans, including foreclosures. It doesn't bar individual borrowers or the federal government from filing suit over predatory lending; it doesn't stop prosecutors from bringing criminal charges; and it doesn't prevent states or the feds from addressing problems with mortgage-backed securities.
Because the settlement is limited in scope, the penalties to be paid — more than $25 billion worth of aid to borrowers and states if California participates — is small relative to the total amount of property value lost in the housing bust. But this settlement comes at the middle of the story, not the end. Settling this piece enables the states to move on to other problems in the housing market, most notably the way mortgages were bundled, sliced, diced and sold to investors.
The ongoing failure of the five banks — Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial — has been their sloppy, penny-pinching and shortsighted handling of the mortgages they service. The settlement requires them to improve their customer service significantly and start modifying mortgages for troubled borrowers more effectively, by writing off part of the debt they're not going to recover under any circumstances. Doing so is costly for banks in the short term, but it's been proved to save them money over the long haul. The sooner lenders start writing down principal, the better. That's the strongest argument in favor of the settlement, and the best reason for Harris to find a way to take the deal.
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