States, banks reach foreclosure-abuse settlement

[Townsend]

Is there more information why OK was the one state that opted out?

http://hosted.ap.org/dynamic/stories/U/US_MORTGAGE_SETTLEMENT?SITE=AP&SECTION=HOME&TEMPLATE=DEFAULT

WASHINGTON (AP) -- U.S. states have reached a $25 billion deal with the nation's biggest mortgage lenders over foreclosure abuses that occurred after the housing bubble burst.

Federal and state officials announced the deal Thursday. It is the biggest settlement involving a single industry since a 1998 multistate tobacco deal.

Under the agreement, five major banks - Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial - will reduce loans for nearly 1 million households. They will also send checks of $2,000 to about 750,000 Americans who were improperly foreclosed upon. The banks will have three years to fulfill the terms of the deal.

All but one of the 50 states agreed to the deal. Oklahoma, the lone holdout, will receive no money.

The conditions will be overseen by Joseph A. Smith Jr., North Carolina's banking commissioner. Lenders that violate the deal could face $1 million penalties per violation and up to $5 million for repeat violators.

The settlement ends a painful chapter that emerged from the financial crisis, when home values sank and millions edged toward foreclosure. Many companies processed foreclosures without verifying documents. Some employees signed papers they hadn't read or used fake signatures to speed foreclosures - an action known as robo-signing.

Under the deal, the 49 states have said they won't pursue civil charges related to these types of abuses. Homeowners can still sue lenders in civil court on their own, and federal and state authorities can pursue criminal charges.

"There were many small wrongs that were done here," said U.S. Housing and Urban Development Secretary Shaun Donovan. "This does not resolve everything. We will be aggressive about going after claims elsewhere."

Bank of America will pay the most to borrowers as part of the deal - nearly $8.6 billion. Wells Fargo will pay about $4.3 billion, JPMorgan Chase will pay roughly $4.2 billion, Citigroup will pay about $1.8 billion and Ally Financial will pay $200 million. This does not include $5.5 billion in federal and state payments.

The deal also ends a separate investigation into Bank of America and Countrywide for inflating appraisals of loans from 2003 through most of 2009. Bank of America acquired Countrywide in 2008.

The banks and U.S. state attorneys general agreed to the deal late Wednesday after 16 months of contentious negotiations.

New York and California came on board late Wednesday. California has more than 2 million "underwater" borrowers, whose homes are worth less than their mortgages. New York has some 118,000 homeowners who are underwater.

In addition to the payments and mortgage write-downs, the deal promises to reshape long-standing mortgage lending guidelines. It will make it easier for those at risk of foreclosure to make their payments and keep their homes.

Those who lost their homes to foreclosure are unlikely to get their homes back or benefit much financially from the settlement.

The settlement would apply only to privately held mortgages issued from 2008 through 2011. Banks own about half of all U.S. mortgages - roughly 30 million loans.

Some critics say the proposed deal doesn't go far enough. They have argued for a thorough investigation of potentially illegal foreclosure practices before a settlement is hammered out.

Under the deal:

- Roughly $1.5 billion for direct payouts, in the form of $2,000 checks, for about 750,000 Americans who were unfairly or improperly foreclosed upon, another $3.5 billion will go directly to states.

- At least $10 billion for reducing mortgage amounts.

- Up to $7 billion for other state homeowner programs.

- At least $3 billion for refinancing loans for homeowners who are current on their mortgage payments but who are underwater.

[Conan71]

I guess several years background in the lending industry still hasn't helped me understand what an "improper" foreclosure is in the context that's being used in this particular story.  Even if there was a glitch in the paperwork on the security agreement or the legalese wasn't 100% correct on a transfer of ownership on a note, it still doesn't remove the responsibility of the borrower to re-pay what they borrowed.

Improper foreclosure would imply that you were foreclosed on while making your agreed upon payments.

It was interesting to note the five majors were participating in this settlement, yet Fannie and Freddie are not.

In the future, perhaps banks will adopt realistic lending practices, like only making 80 or 90% LTV loans as a hedge against falling home prices so they won't have to ever make principal adjustments like this again.  That is until the government tells them that's a discriminatory practice.

[AquaMan]

My understanding is they faked some signatures on the foreclosures to be able to rush them through. Since the mortgages were passed around like hookers at a swingers party, I think it creates some ownership issues as to who can really legally foreclose. If I faked a signature on the loan papers for a house or car I suspect it would affect the quality of the loan and its title transfer.

[RecycleMichael]

OKlahoma lost out because our Attorney General thinks the banks were right.

[nathanm]

I guess several years background in the lending industry still hasn't helped me understand what an "improper" foreclosure is in the context that's being used in this particular story.  Even if there was a glitch in the paperwork on the security agreement or the legalese wasn't 100% correct on a transfer of ownership on a note, it still doesn't remove the responsibility of the borrower to re-pay what they borrowed.

Sure, the borrower is still obligated to pay the holder of the note, but if no holder can prove themselves the legal holder of the note and beneficiary of the mortgage, nobody can foreclose. It's in your best interest not to pay somebody who can't prove they legally hold the note because if they turn out not to, the real holder can foreclose because you didn't pay them.

What they're really talking about is filing fraudulent documents with courts all over the country trying to ram through foreclosures at light speed, foreclosing on people who were current, telling people they had to be behind to qualify for a mortgage mod, not giving modifications to people who qualified and that sort of thing.

I believe this is also in settlement of illegally failing to record mortgages and notes in many states. (IOW, the MERS scam, which is a scam in the sense that it's designed specifically to avoid transfer taxes)

Improper foreclosure would imply that you were foreclosed on while making your agreed upon payments.

It happened quite a few times. In one case in Florida, two different banks claimed to own the same mortgage.

You should spend some time reading about this. There are some interesting books on the whole subject. You'll be shocked at how retarded the banks were. They often didn't even bother to assign the mortgages and notes to the trusts that were supposed to be holding them as part of the MBS arrangement. That means originators who are long gone are the holder in due course, and there's nobody left to transfer the note.

Lastly, I'm annoyed at the least as the banks get bailed out of the mess they made for themselves once a freakin' gain. Good if you're a Bank of America stockholder, I guess. The free market ain't going to regulate itself if there are no real penalties even for outright fraud.

[Conan71]

Nathan, if I'm reading correctly, the banks are paying this settlement out of their own funds, so it's not a bail-out, or did I miss something I should be outraged at (once again)? 

That said, the government needs to tell the banks: "No more freaking bail-outs, not now, not ever.  You go under next time."

[nathanm]

It's a bailout because they're paying next to nothing for pervasive fraud committed by none other than the people getting the sweet settlement deal.

[Conan71]

It's a bailout because they're paying next to nothing for pervasive fraud committed by none other than the people getting the sweet settlement deal.

I've never considered $20 billion as "next to nothing", unless you are considering the $2000 direct payments to those already foreclosed on as next to nothing, then I would agree.

Between direct payments and write-downs on other loans, it's real money.  Of course, early term mortgages earn so much on interest, I'm not sure that the principal write-downs will affect the well-being of the banks, though I'm sure it will allow for some nice tax write-offs 

[nathanm]

I've never considered $20 billion as "next to nothing", unless you are considering the $2000 direct payments to those already foreclosed on as next to nothing, then I would agree.

Between direct payments and write-downs on other loans, it's real money.  Of course, early term mortgages earn so much on interest, I'm not sure that the principal write-downs will affect the well-being of the banks, though I'm sure it will allow for some nice tax write-offs  

$2000 is a pittance when you were illegally foreclosed on. That will hardly pay for moving expenses.

As far as modifications go, that's something that's only in their self interest. Not at all a punishment. The loss on most foreclosures is far more than any principal reduction they'll be giving. Besides, they're not the ones on the hook for most of the principal reductions, the MBS investors are. The banks are making out like bandits on this.

And yeah, $20 billion isn't much when you consider the scale of the offense.

[Conan71]

Besides, they're not the ones on the hook for most of the principal reductions, the MBS investors are. The banks are making out like bandits on this.

Are you sure about that?  I didn't see that, but I've only had time to skim the stories on this.

[nathanm]

Are you sure about that?  I didn't see that, but I've only had time to skim the stories on this.

I'll be able to point to something specific once details are actually released, but it seems inconceivable to me that banks are going to take losses on securities someone else owns without specific putback provisions in the settlement, which I have not seen discussed. Obviously some of the principal reductions will come from the banks because they still own some MBS, but the vast majority of the loans they service aren't owned in whole or in part by the bank that owns the servicer.

I suspect that most of the pain will fall on Fannie, Freddie, and the Fed, who all own large chunks of MBS thanks to the bailouts you weren't told about. Fannie and Freddie buy from the banks, who can then sell them to the Fed. The Fed had bought $1.5 trillion of MBS back in 2010, but resumed purchases again in late 2011. I'm not sure how much they've bought so far in this latest round.

tl;dr: Wait for the real story to come out, which may take a couple of weeks.

[Conan71]

I'll be able to point to something specific once details are actually released, but it seems inconceivable to me that banks are going to take losses on securities someone else owns without specific putback provisions in the settlement, which I have not seen discussed. Obviously some of the principal reductions will come from the banks because they still own some MBS, but the vast majority of the loans they service aren't owned in whole or in part by the bank that owns the servicer.

I suspect that most of the pain will fall on Fannie, Freddie, and the Fed, who all own large chunks of MBS thanks to the bailouts you weren't told about. Fannie and Freddie buy from the banks, who can then sell them to the Fed. The Fed had bought $1.5 trillion of MBS back in 2010, but resumed purchases again in late 2011. I'm not sure how much they've bought so far in this latest round.

tl;dr: Wait for the real story to come out, which may take a couple of weeks.

Ahh spurious conjecture on your part.

What I heard on CBS the other morning was that Fannie & Freddie are not parties to the settlement. 

[Conan71]

AG Pruitt explains Oklahoma opting out of the settlement and explains in terms of what the "real" money settlement is.  Also looks like the banks get to take a tax write-off on the principal write-downs if I read correctly.  According to Pruitt, the real outlay for the banks is along the lines of $6.7 billion.  IMO, this whole thing is looking more and more like a "look what we did for you" political campaign statement (I mean that directed not only at the Obama Admin but also all the state's AG's and I'm sure there are people in Congress who will claim they were party to it).  I'm still unclear why the states are randomly getting $3.5 billion out of the settlement.  I'd be curious to know if that money is earmarked to go directly to harmed borrowers.  If not, this looks just like a typical class-action case where the attorneys get a few million and the plaintiff's class gets a $500 coupon off the list price of a new car that has a 6 month expiration date.

If you decide to click the link to the story, don't read the comments.  I've got Band-Aids over my eyes right now.  Oh the stupidity!

OKLAHOMA CITY - Oklahoma Attorney General Scott Pruitt on Thursday defended his decision to opt out of a multistate $25 billion settlement against five major banks.

Pruitt said Oklahoma crafted its own $18.6 million settlement with the Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and GMAC, which were all subject to the federal agreement.

Pruitt, a vocal critic of President Barack Obama's administration, said his role is to enforce state law.

"It is not to be leveraged as part of an overall coalition and allow there to be a restructuring of the regulatory market or the housing market in this country," Pruitt said.

In a statement released Thursday, U.S. Attorney General Eric Holder called the settlement the largest joint-federal settlement ever obtained. It involved every state but Oklahoma.

"It holds mortgage servicers accountable for abusive practices and requires them to commit more than $20 billion towards financial relief for consumers," Holder said. "As a result, struggling homeowners throughout the country will benefit from reduced principals and refinancing of their loans. The agreement also requires substantial changes in how servicers do business, which will help to ensure the abuses of the past are not repeated."

Pruitt criticized the multistate agreement's loan modifications and principal write-downs.

"We believe the master settlement in Washington, D.C., is more about fixing the housing market and less about truly trying to address unlawful conduct on a state-by-state basis," he said.

Oklahoma got the same amount of money with its individual settlement that it would have received under the multistate agreement, Pruitt said.

The money will be distributed to homeowners who were the subject of wrongful conduct such as "robo-signing" and "dual tracking," Pruitt said.

Dual-track is a process in which homeowners are told they are on track to modify their home loan to avoid foreclosure while at the same time the bank has them on a separate track to foreclose.

Robo-signing involves mortgage servicing companies affixing computer-generated signatures to foreclosure documents that require personal knowledge and verification of the information.

Under the state agreement, individuals will still have the right to sue their banks, he said.

When analyzing the federal settlement, "you need to know that of the $25 billion, only $6.7 billion is real money," Pruitt said. "Although the banks agreed to a settlement of $25 billion, they are only writing checks for $6.7 billion. The balance of the $25 billion is where the administration used it to engage in principal modification and loan modification."

For example, if a homeowner has a mortgage balance of $400,000 but the home is worth only $300,000 in today's market, the bank can reduce the principal balance to $300,000 and get credit for that $100,000 write-off against the money owed under the agreement, Pruitt said.

"If we have $25 billion in harm as a country in the 50 states, it is my belief they should have paid that in real money, but that is not what occurred," Pruitt said.

Sen. Tom Adelson, D-Tulsa, found Pruitt's decision to opt out suspect. He said Pruitt criticizes the Obama administration while 49 states worked together against the worst predatory lending practices in the country.

But Diane Clay, a Pruitt spokeswoman, said that "this issue isn't political."

"Attorney General Pruitt has a fundamental disagreement with the scope of the final federal settlement that goes beyond the responsibility of the state attorneys general to investigate unfair practices."

Pruitt said he didn't know how many Oklahoma residents would be subject to relief under the state's plan.

"Our goal was to use the $18.6 million to address the harms Oklahomans have incurred," Pruitt said. "We haven't decided what that means."
National settlement details

A $25 billion deal between 49 states and the nation's biggest mortgage lenders over foreclosure abuses that occurred after the housing bubble burst includes:

Roughly $1.5 billion for direct payouts, in the form of $2,000 checks, for about 750,000 Americans who were unfairly or improperly foreclosed upon; another $3.5 billion will go directly to states.

At least $10 billion for reducing mortgage amounts.

Up to $7 billion for other state homeowner programs.

At least $3 billion for refinancing loans for homeowners who are current on their mortgage payments but who owe more than their homes are worth.

Read more from this Tulsa World article at http://www.tulsaworld.com/news/article.aspx?subjectid=336&articleid=20120210_504_A1_CUTLIN120608&allcom=1

[Townsend]

The "they" did it for the Buffett.  At least now I know.

http://freebeacon.com/warren-buffetts-net-worth-jumps-154m-thanks-to-mortgage-settlement/

Warren Buffett's stake in Bank of America Corp. increased in value by $154 million after President Obama and the U.S. Justice Department announced a $25 billion foreclosure abuse settlement with the five largest U.S. banks Thursday, records show.

Buffett invested $5 billion in Bank of America (BofA) on Aug. 25, 2011. As part of his investment deal, Buffett gained warrants that allow him to buy 700 million shares of Bank of America stock at a strike price of $7.14 a share. However, on Dec. 19, 2011, it was reported that Buffett was $1.5 billion underwater on his stock warrants, with shares of BofA stock trading at $4.94. But on Thursday, after President Obama personally announced the details of the settlement, BofA stock closed at $8.13 a share. The stock opened Friday morning at $8.31 and reached as high as $8.35 a share.

If Buffett had exercised his warrants Friday morning, he would have made $847 million. $154 million of that profit would have been related to the foreclosure deal.

This is not the first time Buffett has profited from Obama administration policies. In November 2011, it was reported that President Obama's two-year postponement of the deadline to determine the future of the proposed Keystone XL pipeline would force North Dakota oil producers to rely more heavily on the Burlington Northern Santa Fe Railroad. Buffett's Berkshire Hathaway Inc. holding company purchased the Burlington Northern Santa Fe Railroad Corp. in a total package worth $44 billion in 2009.

Buffett has personally contributed $5,000 to Obama this election cycle, while Berkshire Hathaway has contributed $30,800 to the Democratic National Committee.

This summer, Obama will accept the Democratic Party's 2012 presidential nomination with a speech at Bank of America Stadium in Charlotte, N.C.

[Conan71]

Wow, it's pretty cheap to buy influence from the president.  I wonder what I could get for $5000?