Who Wins with the Foreclosure Settlement? Two Words: Big Banks

by on Foreclosure Crisis, Foreclosure Help, Foreclosures

The foreclosure settlement between states, the federal government, and five big banks is signed, sealed, and delivered – but who is the beneficiary of the deal?

Those in the banking industry and in the federal government – as well as a good chunk of state attorneys general who participated in the negotiations and therefore have a lot invested professionally in the success of the deal – would say that the consumer won. After all, the banks have to pay at least $26 billion, including checks written directly to thousands of Americans and principal reductions for many homeowners who are underwater.

Those who have criticized the process since its inception, and have argued strongly against any kind of settlement with banks that are more than likely guilty of widespread foreclosure fraud and deception, say the deal isn’t a bargain at all for homeowners and instead is a win for big banks and no one else.

In fact, some have even gone as far as to say the arrangement rids the banks of toxic inventory in the form of bad mortgages by using $17 billion in principal reduction credits­ – not cash. Furthermore, the big five – Wells Fargo, Bank of America, Citibank, JPMorgan Chase, and Ally Financial – won’t really be out much cash at all, it turns out.

The $26 billion amount isn’t a cash amount; only roughly $5 billion will be in cash payments in one form of the other. In addition to the $17 billion above, roughly $3 billion or so will be for mortgage loan refinancing – which still keeps the business generated by the mortgage with the bank. So, if the homeowner can stop foreclosure the banks win; if the homeowner still succumbs to the foreclosure process, the banks win because they can reclaim the property.

Throw in no real definite mechanism for reworking the foreclosure process – perhaps the key, central incentive behind any legal proceeding against the home finance industry – and one might see the makings of a great deal for the banks.

Plus, there are still millions of foreclosure listings on the market that haven’t gone away and are still dragging down market values and hurting existing supply. This deal has no measurable and enforceable mechanism to deal with these foreclosures, or most of the 11 million Americans underwater.

Compared to that, and the rampant foreclosure fraud and deception that occurred, $26 billion seems like a rotten deal for the American public.