Why the bank-settlement talks are likely to drag on indefinitely

By Felix Salmon
August 22, 2011
NYT and the WSJ on the status of the bank foreclosure-settlement talks.

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Today brings dueling stories in the NYT and the WSJ on the status of the bank foreclosure-settlement talks. At issue is the question of whether the banks should be given immunity with respect to lawsuits surrounding their securitization shenanigans. Here’s the WSJ, saying quite clearly that they won’t:

U.S. and state officials dismissed the push for broad immunity as a “nonstarter,” according to a federal official involved in the talks, but they have countered with a narrower offer. It would cover robo-signing and other servicer-related conduct but leave banks open to potential legal action for wrongdoing in fair lending and securitization, according to people familiar with the situation. Attorneys general in California, Delaware, Massachusetts and New York have said they are investigating mortgage-securitization practices.

In the NYT, by contrast, Gretchen Morgenson says that New York’s Eric Schneiderman is pushing back against a federal attempt to give banks immunity on such matters:

Mr. Schneiderman and top prosecutors in some other states have objected to the proposed settlement with major banks, saying it would restrict their ability to investigate and prosecute wrongdoing in a variety of areas, including the bundling of loans in mortgage securities.

So, is immunity with respect to mortgage securitization a nonstarter, or is it the whole reason why banks would dream of signing the settlement in the first place? I suspect it might be both. If I was a bank, I wouldn’t dream of paying billions of dollars in return for a narrow settlement precluding further prosecution about robo-signing and the like: it just wouldn’t make economic sense to do so. At the same time, if I were Schneiderman, in the middle of a detailed investigation into what banks’ mortgage departments got up to in the run-up to the crisis, I certainly wouldn’t want that investigation rendered moot and toothless before it had even been concluded.

If you’re expecting this settlement to be announced any time soon, then, prepare for disappointment: these are the kind of talks which often fall apart at the final hurdle. The Justice Department is on the record as wanting to “bring billions of dollars of relief to struggling homeowners”, but it’s not obvious that this settlement is the best way to do that, or even that any kind of mechanism for delivering that relief is credibly in place. So my expectation is that the talks are going to drag on, yet another contingent liability hanging over the head of America’s largest banks. It’s an outcome that no one really wants, which weirdly makes it the kind of outcome most likely to happen.


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What, nothing sterner to be said about the fact that the Obama administration is actively trying to push Schneiderman into accepting a broad waiver of all (very likely) criminal behavior the banks have engaged in?
I would’ve thought a administration trying to break down the whole separation powers thing by leaning on an AG would merit a bit more interest.

Posted by Foppe | Report as abusive

If they started prosecuting these crimes the Republicans would cut off their budget tomorrow… best to get a cash settlement that they can parade in front of the press and quietly bury the rest. Call me cynical but justice is a paid servioe in America and (sad to say) the govt doesn’t have the budget to compete with corporate crooks.

Posted by CDN_Rebel | Report as abusive

This seems to be yet another example of the lack of accountability in this country. Felix fails to address the fact that the Obama regime, heavily backed by the financial sector, is attempting to prevent financial institutions from being held accountable for breaking the law. There are simply two legal systems within this country; one for those who can make large political contributions and one for those who can’t. Here’s a better look at the issue…

http://www.nakedcapitalism.com/2011/08/c orrupt-obama-administration-pressuring-n ew-york-attorney-general-to-support-mort gage-whitewash.html

Posted by badbisco363 | Report as abusive

Robo-signing is a fraud. Illegal. Punishment is needed. Real punishment. Real JAIL time.

We should never settle these cases or arrange for immunity.

My suggestion for rob-signing fraud: Any homeowner who lost a house to foreclosure that included robo-signing gets the house for FREE, paid for by the bank. Every house. Every foreclosure. No lawyer fees. Just summary judgment.

That will put the banks out of business,as they deserve.

Posted by MarkWolfinger | Report as abusive

great idea Mark… free homes for people who don’t pay their bills and expensive homes for those who do.

Your plan puts the top 10 banks in the country out of business overnight, which I understand is fine with you… but that would also lead to an immediate depression in the economy because the ten largest banks are so large that the next 90 banks could not fill the void even if they tried.

What would not robosigning accomplish in your mind? 6 more months living rent free for non-payers? End result is still the same… the jobless still lose their houses. The people who pay their bills carry the costs of those who do not. Robosigning is a made up crisis.

Posted by y2kurtus | Report as abusive

I’m tired of the major banks going through the White House, Fed, SEC, Treasury and US Senate to screw the little guy. Rather than playing CYA at the level of corruption only the Federal government is able to attain, it’s time the major financial institutions cleaned house starting at the top. After they’ve thrown the guilty in their own organizations out on the lawn, they can start throwing the poorer small time crooks and freeloaders out of their homes. If O’bama Inc pushes too hard for a whitewash settlement, time to throw him out of his House ..

Posted by Woltmann | Report as abusive

Robo-signing means that lawyers and attornies broke state laws on how they are to conduct their professional business, including perjury on court documents. At a minimum, they should lose their licenses and not be permitted to practice anymore. This was not a “negligent error or omission.” This was a deliberate voiding of the rules to increase fees while controlling costs. Significant perjury by attesting falsely in numerous affidavits should also mean jail time.

The banks that did not transfer the appropriate documents to the MBS trusts and the trusts that did not supervision their own documentation that would have accompanied the receipt of those documents either committed fraud or failed their fiduciary responsibility to their investors. Where they were simply negligent, they should be liable for investor losses due to the improper or missing transfers. Where they were fraudeulent, there should be jail time.

These issues impact potentially a trillion dollars or more of securities and foreclosures. Governments are very good at going after the people who embezzle $20k but appear to have sufficiently great admiration for the people who can embezzle $200B that they won’t even open up a serious investigation.

Posted by ErnieD | Report as abusive

Thanks ErnieD, for saving me a lot of time replying. Fraud is fraud and it should be investigated and people thrown into jail. Of course now that we know the SEC has been in collusion with those who were let of scott free… everyone wants to throw in the towel.

Especially y2kurtus, the banker. To the bankers, those people being foreclosed upon are bad people and all those who are bankers need to be protected… even though they and their agents and lawyers acted criminally and broke the law.

Posted by hsvkitty | Report as abusive

The only answer is to nationalize the servicers, to replace their management with new people who have no stake in protecting the fraud and the mistakes of the past. But that would contradict the right wing phobia against the government policing against fraud.

Posted by djfnyc | Report as abusive

MarkWolfinger, I don’t think you go far enough. Anyone who is not 100% up todate on their loan should be kicked out of their home immediately. Every house. Every default. No lawyer fees. Just summary judgment. Sound good to you?

ErnieD, think you’ll find the actual people who got caught robo-signing already have been dropped – and last i heard were going out of business. Also not sure robo-signing is a criminal offense as opposed to a civil one. I am sure you can post the exact code in federal law or state law where it posits jail time. As for securitisation, for all the hysteria about how it was going to be the end of securitisation, how many mortgages in how many trusts has this actually impacted? Will bet by value less than 1%.

hswkitty, to bankers the people being foreclosed on are people in default who have no chance whatsoever of remedying that default. You of course know this because you keep posting links on how people who are not up to date are getting foreclosed on, so you must have read it at least 100 times.

Naked Capitalism et al are probably desparate right now to fabricate some other end of the world scenario that will drive more traffic to their sites. I am sure all the so-called journalists who whipped this up will be happy to state that in the end it turned out to be a minor storm in a teacup.

Posted by Danny_Black | Report as abusive

Individuals in these banks broke the law. Fraud and forgery are illegal and those who did so should be fined and jailed, including those who authorized the activities and corporate officers who were aware and failed to report or halt the illegal activities. Exempting people from prosecution will encourage similar behavior in the future. The banks themselves need not be put out of business, but there are many bankers who should be shut down.
This is a seperate issue from valid foreclosures, however banks should be required to follow the law here as well. If the right and legal documentation does not exist because of sloppy record keeping and fraudulent paperwork, then their are laws in place to deal with those situations already. Some people may keep homes they shouldn’t, but the laws are there to protect both parties, not just the banks investment.

Posted by Anonymous | Report as abusive

Anonymous, think you’ll find the guys who “robo-signed” are mostly lawyers at outsourced foreclosure mills not banks.

Homeowners already are protected. As far as I can tell there is not a single case of a completely up to date homeowner losing their home. There are cases of mistaken cases which are trivial in number relative to the number of outstanding cases. There was another post by Mr Salmon that had a Treasury study showing that up to 10% of the foreclosure docs had some sort of fault. I am pretty sure that a reporter who was flawless 90% of the time would be pretty happy with that hit rate.

Posted by Danny_Black | Report as abusive

Danny, even if the guys doing the “robo-signing” were at outsourced companies, there were people at the banks that authorized those companies to “do what it takes” and had to know or should have known what those firms were doing. You can not outsource responsibility.

Posted by themikeuno | Report as abusive

Danny_Black, the bank apologist… making more smoke to blow out of his orifices to protect his former employers.

The banks had been told to cease and desist… and given the hand slap, yet they are STILL using forged documentation to foreclose. You think it is just fine for a person off the street to sign forged documents that says the bank owns the property? To falsely sign that they not only read the documentation and it is in order, but to forge they are a Bank President or other false position? Why? Because Danny_Black says the person being foreclosed upon deserved to be… of course! Why would he care what illegal acts the banks used in doing so!

Phony titles, phony signatures, phony documents are state and federal crimes, and should have been prosecuted long ago.

The United States Criminal Code has 45 different statues that cover frauds like forgery, so why have none been used is the question. The only answer is banks are being protected … They are too big to fail and too big to jail, even in the face of overwhelming evidence.

There is likely also collusion given the AGs have thrown up their hands and given up and the SEC is destroying documents rather than jailing the guilty. All that lobbying and those campaign donations was not for naught! And who knows what happened under the table and who got what new better paying position over this. We will read about it in the plethora of new books that will be spawned…

Meanwhile the Administration itself is also wishing to give banks a free pass from prosecution, even though the fraud is ongoing, which begs the question whether home titles will ever be actually “free and clear” given the new basis of fraud, rather than law, in the mortgage industry.

Banks and their agents have been guilty of Federal offenses such as:

*Antitrust violations: securities fraud …

*Financial fraud: insurance fraud, mortgage fraud, kickbacks …

*Judicial fraud: perjury, false statement…

It is high time that the banks and their agents are charged every penny it takes to resolve any issues relating to their sloppy and illegal acts.

Posted by hsvkitty | Report as abusive

hsvkitty, do you actually know what the words you type actually mean?

Posted by Danny_Black | Report as abusive

Yes Danny Black, but Reuters won’t let me say you blow smoke out of your A$$ … sorry!

Posted by hsvkitty | Report as abusive