Banks Put Up Over $20 Billion in One Day to Settle Charges of Mortgage and Foreclosure Abuses, But is it Enough?
By Jason Enzler
Last week, the Federal Reserve and the Comptroller of the Currency announced that ten banks have agreed to an $8.5 billion settlement to resolve allegations of foreclosure abuses. The banks, which include Bank of America, JP Morgan Chase, Wells Fargo, and Citigroup, agreed to pay $3.3 billion directly to eligible borrowers and an additional $5.2 billion in other relief, such as loan modifications. That same day, Bank of America reached a separate $11.6 billion deal with the government controlled housing agency Fannie Mae to resolve claims of faulty mortgage sales made by Countrywide Financial between 2000 and 2008. Bank of America’s $4 billion acquisition of Countrywide has cost it over $40 billion in real estate losses, legal fees, and settlements.
These latest moves follow a $25 billion settlement these same banks reached with the federal government and 49 state attorneys general announced last February (Ally Financial was part of that settlement; it is still reviewing whether it will sign on to this most recent settlement).
Despite such large numbers, many are questioning the settlements. For example, the New York Times ran a piece entitled Surprise, Surprise: The Banks Win that points out just how little this may leave those homeowners who were victims of the banks’ mortgage misconduct. According to that article, likely relief under the current deal for these homeowners will be between $2,000 and $8,500 on average, depending on how many borrowers were subject to the banks’ abuses. This span falls far short of the $15,000 to $125,000 range of relief regulators had projected would result from the government’s prosecution.
The criticism of these settlements from the Times and others is understandable given that the mortgage mess was largely responsible for the Great Recession and why many Americans’ houses are still underwater. Not to mention the public’s growing realization that such settlements are not always as significant as they appear (click here for an earlier post on how settlement amounts can be set-off by tax deductions and here to read a post on how Big Pharma companies seem to accept fraud settlements as a cost of turning a profit. Those feeling that the banks are getting off too easy can at least take some solace in the knowledge that others still have their sights on the banks. For example, while the Bank of America settlement releases Fannie Mae’s claims, claims against the bank for billions of dollars of damages by investors and other government entities remain.