Many believed there would be no way ten major banks and mortgage companies would ever agree to settle a lawsuit that included accusations of wrongfully foreclosing on close to 4 million mortgages that weren’t even near foreclosure status. They thought bank CEOs and board members would eat nails before every conceding. Instead, on Monday, news broke that not just one or two of the banks settled, but all ten named in the lawsuit agreed to pay $8.5 billion to settle those federal complaints.
Wells Fargo, Bank of America, CitiGroup, PNC Financial Services, SunTrust Bank, U.S. Bank and others must now pay homeowners billions that will halt foreclosure processes. The reviews, you may recall, were ordered in 2011 due to the mishandling of paperwork. It was discovered that many banks had shunned their responsibilities, sometimes bypassing legal steps that banks must adhere to in their efforts of beginning the foreclosure process.
If you’re included in this settlement, you could reap anything from $1,000 up to $125,000, depending on each homeowner’s situation. In total, around $3.3 billion of that $8.5 billion will go to homeowners while another $5.2 billion will go towards assisting homeowners who are struggling to find better solutions that will allow them to keep their homes, including loan modifications and other solutions. It also is based on how big the infraction was. For instance, if a representative failed to offer alternatives to homeowners who were looking for ways to stay in their homes, that’s not as serious as, say, selling the home out from under the homeowner without having gone through the proper channels to do so. These guidelines, released late last summer, were written by the Office of the Comptroller of the Currency, which, along with the Federal Reserve, made the announcement on Monday. The illegal foreclosures occurred between 2009 and 2010. A spokesperson for the OCC said the deal “represents a significant change in direction” from the original suits and ultimate agreements in 2011.
So how did all of this get started?
Banks had complained for months that the reviews they were ordered to conduct in 2011 were too time consuming and were costing them money. These new orders included a physical review of every single loan in question. The banks argued because so much time and money was being spent on the reviews, they’d not been able to adequately help homeowners. They began farming those tasks out and the problems began. First, many said the third parties weren’t objective and too many times they ruled against the struggling homeowners. There were few, if any, homeowners who were benefiting from these reviews. In fact, many said these efforts hastened the foreclosure process.
The banks argued that “needless delays” were occurring and that these third parties would better serve the homeowners. Those complaints were met with frustration. In fact, Diane Thompson, who is an attorney with the National Consumer Law Center summed it up best,
It’s another get out of jail free card for the banks. It caps their liability at a total number that’s less than they thought they were going to pay going in.
The settlement should put an end to this long-running feud.
As news was breaking about this story, another bank – Bank of America – was coming to yet another settlement, this time with Fannie Mae. The banking conglomerate announced it would pay Fannie Mae $3.6 billion for selling bad loans. It also said it would buy back some of the worst loan packages, which should total at least $6.75 billion. What many were surprised to learn was that it was common for borrowers to default on their loans sometimes within minutes of taking on a mortgage. This meant the taxpayer-supported Fannie Mae suffered unbelievable losses from the moment it agreed to buy the mortgages. No doubt Bank of America and many of these other big banks are taking major hits in fines from a number of sources, including CFPB, FCC, Office of the Comptroller of the Currency and the Federal Reserve. This marks the second fine for the bank in one week.
You may recall Bank of America bought out the very troubled Countrywide bank in 2008, just before the financial crisis kicked into overdrive. Of course, Countrywide was already being seen as a less than ethical entity and its leader, Angelo Mozilo, is the convicted felon who once oversaw what is now bound to be remembered as the “most corrupt subprime mortgage lender in the U.S.”. In fact, he was forced to testify last week for actions that happened on his watch. Unfortunately, he made a complete fool of himself in the process and refused to answer even the most obvious questions given to him by lawyers. Countrywide often approved mortgages using stated information. Stated information is what the applicant “states” on his application for a home loan. It doesn’t become “verified information” until the loan officer actually takes the time to ensure the applicant wasn’t sugarcoating anything. During those years, Countrywide was fine with the thought that it might not know for sure if its applicants were telling the truth.
Since Bank of America now owns the bank, it must shoulder the financial burdens of that legacy. Meanwhile, Bank of America Corp. also said that it has begun the process of selling mortgage servicing rights on about 2 million loans. It’s expected to take a few hits, but it remains optimistic that its fourth quarter earnings should be fine. The problem with that is it will allow the other big banks to pick up the slack and that has many analysts worried since the goal has been to ensure there would never again be “too big to fail” dynamics in any bank.
So what do you think of this endless barrage of bank fines that are being forced? Some are saying we’re witnessing the downfall of the traditional American financial sector. Is that possible or do you think these are just a few final steps being taken to better position themselves to once again become the “too big to fail” problems they were just a few short years ago?