After wrongful foreclosure practices came to light in October 2010, attorneys general from all 50 states joined forces together with the federal government to punish five large financial institutions - Bank of America, JPMorgan Chase, Citigroup, Wells Fargo and Ally Financial - for mortgage related misconduct, including "robo-signing" and failing to provide mortgage modifications to eligible homeowners. It now appears that a $25 billion settlement is near, but whether it adequately punishes the offending lenders or lets them off the hook is a matter of considerable debate. The Wall Street Journal reports on Why a New Refinance Program Faces Long Odds - click to read.
While all of the details of the settlement have yet to be released, it appears the bulk of the money ($20 billion) would be used for principal reduction and refinancing programs for borrowers in danger of foreclosure, with the remaining $5 billion going to those directly affected by the foreclosure violations, with the wrongfully foreclosed homeowners receiving an average of $1,800. (Yes, folks, I said $1,800!) Estimates are that the $20 billion would reduce the average mortgage balance of approximately 100,000 homeowners whose homes are under water by $20,000. However, there are approximately 2.3 million homes in the foreclosure pipeline that are under water by an average of $60,000, so opponents of the settlement argue that the proposal isn't nearly punitive enough. When you consider that taxpayers bailed out these same lenders to the tune of $600 billion, you can certainly understand their position. But, we are in an election year, so President Obama clearly wants to announce a settlement to appeal to his supporters as a champion of consumers. The Wall Street Journal gives us answers to six questions on Obama's Mortgage Refinance Proposal - click here!
Assuming the federal government announces a settlement soon, the major question is whether all 50 attorneys general will approve the settlement, thereby effectively capping the liability that these five major lenders face from their deceptive lending and mortgage practices. Massachusetts and California are two of the states threatening to refuse to accept the settlement. For those many citizens that believe the federal government was responsible for the lack of oversight that led to the improper lending practices in the first place and then assisted those lenders with a bailout at the taxpayers' expense, the federal government is again letting the lenders off the hook with a settlement that will hardly impact them. And speaking of improper practices, click here to read about how JP Morgan embarrassed themselves when they wrongly foreclosed on 14 active military families.
Is it still business as usual between lenders and the federal government? That's a question each of us will have to decide for ourselves. Meanwhile the big banks are banking on spending less...click to read.
What's your take on the foreclosure crisis? Do you think Obama's refinance program could work? Discuss!