So the nation’s five largest banks will pay $25 billion as a “settlement,” and some homeowners who are upside down on their mortgages will get relief.
So much to pay for so little that will be accomplished.
First, the deal.
About 1 million homeowners whose homes are at risk for foreclosure will get a little relief on their mortgage loans through reduced principal — supposedly something good for Sarasota’s market, which still has too many homes in foreclosure or verging on it. About 750,000 people whose homes were foreclosed on improperly will get a one-time $2,000 payment.
Bank of America will pay the most to borrowers, about $8.5 billion. Wells Fargo will pay about $4.3 billion, JPMorgan Chase about $4.2 billion, Citigroup about $1.8 billion and Ally Financial will pay $200 million. Plus, $5.5 billion will come from federal and state payments.
There’s no doubt there were abuses in the foreclosure process, with bank and lawyer robo-signers cutting corners and not reviewing necessary paperwork. Where laws were broken, criminals should be prosecuted. But in the broad context, did these bank actions result in the people who were making regular payments being thrown out of their homes when they should not have been?
Rarely, if ever. Most were far behind or just not paying, and the cause for foreclosure was undeniable, even if somebody faked signatures. If you don’t make payments, you lose your house.
This is not to excuse shoddy behavior by banks and lawyers. Some law firms, such as David Stern’s, the biggest foreclosure operation in the state at one point, are out of business.
But was there a grave, $25 billion injustice that this will fix? No, because most of the problem was procedural. The banks were under such a crush of foreclosures, they got caught cutting corners. Some lawyers who were greedy really snipped the edges of the law. They should not have done that, so they should be punished.
So homeowners win with this settlement. Banks also win, because they get to put the mess behind them. (Bank stockholders, however, lose; that’s their money that is being paid.) The housing market might even get a little win out of this. But politicians get the big win; they get to look like the cavalry riding in — as always, with other people’s money.
The news accounts consistently refer to this money helping people who are upside down on their mortgages. OK. But let’s remember that it is not the banks’ fault that people are upside down on their mortgages.
Full disclosure: I am right side up on my home, which I bought in 1992. But I am significantly upside down on a rental house I bought at the end of 2007. So I don’t get anything from this settlement for either house, even though I have been hurt by the value slide, like everyone else, and have been making payments on both houses.
And here is the point: In both of those cases, you will note in the sentences above, “I bought” the houses. I chose the houses to buy. I chose the time to buy. I chose the amounts to pay. I chose the bank to get the loan to buy the houses, because I did not have enough money to pay cash. I accepted the interest rate. We made a deal. I said I would pay back the loan.
Everyone upside down on his house did the same thing. He chose which house to buy, when to buy it, how much to pay, and what bank to use, and he accepted the interest rate and promised to pay it back. He signed papers.
The recession changed circumstances for some people, and they could not pay back loans. That is understandable. But how, in the broadest sense, has this situation come to be the banks’ fault?
I never dreamed of going to the bank and demanding it change the rules of the contract I signed, because, in hindsight, the rental house was not a good purchase. It will take years to get rigside up on it. I could just walk away.
But I went to the bank in the first place to get the loan.
We spend too much time blaming someone else for our misfortunes, and we want to get bailed out.
Banks, insurers, auto manufacturers, homeowners. We all want, and perhaps even expect, that the government will fix our mistakes.
That’s maybe the biggest mistake.
Because in the most on-the-ground sense, this latest bailout will help very few people — maybe one in 10 in the target group. However, it will allow for a lot of political crowing for those seeking re-election. And in government, that’s what it is all about.
Rod Thomson may be reached at email@example.com.
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