Banks Settle More Robo-Signing Claims, Regulators Get Political Win

Federal regulators announced an $8.5 billion settlement yesterday involving 10 major banks. The twist in this case is that regulators are tacitly admitting they might have been a bit over-zealous in their regulating.

The settlement is a result of the so-called “robo-signing” scandal that broke a few years back when it was discovered that banks had been signing off on foreclosures without actually reviewing the paperwork on each home. Not only was this a serious violation of the law, but it wound up violating individual property rights when the mismanaged paperwork led to homes being erroneously foreclosed on.

In light of the allegations, federal regulators set up the Independent Foreclosure Review board and invited the 4.4 million homeowners who were foreclosed on in 2009 and 2010 to submit claims if they felt they had they had lost their homes due to a bank's error. Since then, federal regulators have been burrowing deep into the mortgage servicing community, trying to root out every dubious practice and structural problem to keep this from happening again.

That process has brought something striking to light: Most people were properly foreclosed on. Many of the people who had their homes taken were well behind on their payments; robo-signing just sped up a process that was going to happen anyway.

The banks still broke the law and should be fined, but the evidence suggests homeowners who were current on their payments, but lost their homes, were an anomoly. (The Independent Review has only processed 315,000 claims over the past two years, according to ProPublica.)

The Independent Review was costing banks significant sums—consultants making $250 per hour will add up over time—and the review process had turned from an honest attempt to find borrowers wrongly foreclosed on to regulators granting sweetheart contracts to consultants to dig into bank practices that were well unearthed.

While it is difficult to have any sympathy for the banks that only exist today because of taxpayer bailouts, the Independent Review process did more to line the pockets of consultants, hurt bank shareholders (and banks), and stretch regulators' resources than it did to right wrongs created by the robo-signing process. Monday's settlement ended that process and in exchange created a $3.3 billion pool of money to settle any remaining claims of wrongful foreclosure.

However, similar to a settlement in February 2012, the 10 banks are also committing $5.2 billion to help out current borrowers who are struggling to pay their mortgages. This is where the settlement goes from an understandable fine to a political headache. Why should regulators make banks pay "restitution" to borrowers who are currently in their homes but unable to pay? How is that a way of resolving mistakes the banks made regarding borrowers already foreclosed on two-to-three years ago?

In the settlement last February, attorneys general from several states, the Department of Housing and Urban Development, and the Justice Department reached a $25 billion settlement agreement with the top five mortgage servicers—and only $1.5 billion of it was used for restitution related to anyone wrongly foreclosed on. Most of that settlement has been put towards helping current homeowners struggling with paying their mortgage by reducing their monthly payments. 

The reason for this mismatched fine and crime is, of course, politics. Federal officials want to help struggling homeowners now, so they extract more than necessary from the banks to get a political win under the guise of punishing banks for previous misdeeds.

This settlement should have narrowly focused on resolving claims of improper foreclosure, shutting down the Independent Foreclosure Review program, and—most importantly—forcing the banks to admit their guilt so that future failures could be punished harsher. Naturally that did not happen, and like nearly every other settlement, regulators have been happy to let the banks slide. Cheers for regulators backing down from their overzealous investigation, but shame on them for their willingness to just accept Washington's version of justice.

(Just to be clear, this $8.5 billion settlement related to bad mortgage practices in 2009 and 2010 is separate from an $11.6 billion settlement Bank of America signed with Fannie Mae related to bad mortgage practices during the years leading up to the bubble crash. I discussed this on HuffPost Live earlier today.)

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  • John||

    Would you guys feel the same way if it turned out that "most of the warrants obtained by Police Department (X) were properly signed by a judge"? It is the law. Fuck the banks. It is their business to know how to properly and legally foreclose on a house. I am sorry but "well they were not paying anyway" is no excuse for not following the law. If it were, why even bother to have a foreclosure process? Banks have no incentive to throw out paying customers, so why not just let them sans any court proceedings? They will get most of it right. Right Reason?

  • BarryD||

    I have to agree.

    A trustworthy system with the rule of law is one reason that American real estate is worth so much more than adjacent Mexican real estate. You can't have a functioning market when "well, MOST people who got foreclosed on were actually behind in their payments!" is the standard.

    Does the author have a CLUE what sorts of procedural protections are in place, to safeguard real estate transactions? There's a REASON for them. Maintaining accurate and complete records of land title, for example, is one of the few really legitimate functions of government.

  • robc||

    Maintaining accurate and complete records of land title, for example, is one of the few really legitimate functions of government.

    Reason #37 I support the single land tax.

  • John Henry||

    Reason #37 I support the single land tax.

    As opposed to what? Property tax as now administered. What are the benefits of a single land tax? Are you talking about Henry George and his ideas?

  • robc||

    As opposed to what?

    Do you not understand the word "single"? As opposed to all other forms of taxation.

    What are the benefits of a single land tax?

    No deadweight loss. I think it is the only taxation that is morally justifiable (although plenty of libertarians disagree with me -- it depends on what you think about natural law property rights, I guess).

    The second is a bigger benefit than the first, but the first is nice too.

    Are you talking about Henry George and his ideas?

    Just this one. Idea. Singular.

  • John Henry||

    Do you not understand the word "single"? As opposed to all other forms of taxation.

    Actually, yes. I understand single well. But you had land tax behind it. I have talked with some that like the idea of a land tax to replace property taxes; yet still keep sales taxes, etc in place. Just trying to be clear about what you are talking about.

    No deadweight loss. I think it is the only taxation that is morally justifiable...

    I am not sure you can morally justify any tax, but what makes this one more moral?

    Just this one. Idea. Singular.

    Any good sites or books to read up on this idea. I am not being snarky, I am trying to understand your ideas. And this one seems interesting to me.

  • robc||

    google "single land tax". The wikipedia article doesnt entirely suck, IIRC.

    but what makes this one more moral?

    The others ARENT moral, so that is an advantage. But, like I said, it depends on your view on property rights. I dont buy any of the claimed versions of natural property rights, so I go with the Georgist view (in part) on it that as the government grants the deeds, they can collect the rents, in the economic sense. It also goes with his view that the government had no right to a claim on our labor, so any improvements are untaxed.

    It also has the advantage of seriously restricting government. A single land tax of say, 6%, split between federal/state/local governments wouldnt allow for much big government.

  • Paul.||

    I am not sure you can morally justify any tax, but what makes this one more moral?

    Lots of things. I've been hammering the point for years that an income tax is uniquely immoral amongst taxes because of the two major problems it poses in regards to government tracking its citizens:

    1. Income must be defined. And as we've discovered over the last 25 years or so, anything you receive from anyone else can be defined as 'income'. And income taxes must be paid in dollars. There are subjective value problems, and income taxes often force the sale of private property received from another party-- be that property an object of art, or actual, real property, because once received, a value is attached by an unelected IRS agent, and you have to pay the taxes in cash, often forcing the receiving party into liquidating the asset.

    2. It fosters an environment where government must know the business, interactions and agreements between free people. It's no business of the government's to know how I spend my day, and what compensation I might enjoy from it. None. The end.

    You're correct about all taxation being morally questionable, bur there are better methods of taxation which at least remove some of those repugnant ways of collection that an income tax indroduces.

    I think reasonable people can agree that all forms of tax collection are not equal, and on the scale of degree, some are worse than others.

  • Scarecrow Repair||

    I have appparently not learned enough abotu this single land tax to understand it. As I understand it, the tax is constant, ignores improvements, location, etc. It must be per acre/hectare/cubic fortnight or it would be even odder. Here's where I get confused.

    Google says 2.4B acres in the US. Call the budget $3.6T. That's $1500 per acre. That's fine for cities, but I can't imagine many ranchers or farmers able to pay that.

    If it were per parcel, assume there is one parcel per American, 300M. That's $12K per parcel. That would be workable as the sole tax, but it seems crazy to not distinguish parcel size.

    Where is my misunderstanding?

  • BarryD||

    Most of the yogurt wasn't cyanide!

    Only 5% of the parts in that car came from chop shops that parted out stolen cars!

    Well, hell, she only got raped a few times, which isn't too bad considering that most of the time, when she had sex, it was consensual!

    Only a few of those $100 bills I just gave you are counterfeit!

    Geezus.

  • Fatty Bolger||

    I agree. But on the other hand, the government has put banks through an unbelievable amount of bullshit to keep them from foreclosing on homes that definitely should have been. Believe me, the government and borrowers are taking far more advantage of the banks than the other way around.

  • John||

    But the banks did a lot of this to themselves. A big part of the problem is that the banks farmed out the mortgages to the point no one is sure who owns the mortgage. They robosigned because they didn't know who the proper party was to bring the foreclosure action. In those cases they fucked themselves. And I have no sympathy for them. If you screw up and lose the mortgage, I guess the dead beat homeowner gets to keep the house. Thems are the breaks as they say.

  • BarryD||

    Also, the MBS system was not just something that they accidentally lost track of. It was essentially fraud, and not keeping the clearest records of which mortgages were which was a feature, not a bug.

  • robc||

    I blame the courts too.

    Judges should have been throwing out any foreclosures where the bank didnt show up with the proper paperwork.

    And/Or jailing the lawyers for contempt if they couldnt produce it within 24 hours.

    Dont schedule the foreclosure if you dont have the paperwork.

  • Stormy Dragon||

    Unfortunately there's a regulatory capture issue here. If judges started enforcing the law against the banks, they'd suddenly find themselves not getting reappointed/renominated.

  • Adam330||

    In many states, there are no courts involved in foreclosure.

  • BarryD||

    The government (or rather, the completely independent, non-political Federal Reserve) has been giving the banks free money (well fake money, but that's what the banks use anyway).

    Not seeing how the banks in question are getting fucked.

    WE are getting fucked.

  • BarryD||

    (Not that giving a few deadbeats free houses is a just solution to this, of course, from any perspective, but the banks in question make essentially all their money on arbitrage of corrupt, destructive government policy.)

  • Stormy Dragon||

    The fact that A is screwing B doesn't morally justify B screwing C.

  • BarryD||

    That's the most concise rejoinder to the Occupy rhetoric, that I've ever seen.

  • ||

    Except Randazzo says repeatedly that punishing banks for their misdeeds is right. The point of contention is using those fines for something unrelated to compensating wrongly foreclosed homeowners. Do you ever bother to read articles any more before responding, or do you just not care what the writer actually says?

  • BarryD||

    See my suggestion for rectifying this, below.

  • ||

    Like, "read the article"?

  • John||

    I read the article and couldn't care less what they use the fines for. Who says the fine must be used to compensate homeowners? One has nothing to do with the other.

  • ||

    If the whole point is the wrong done to homeowners, then yes it should be about the homeowners. Duh.

  • John||

    No. If someone gets fined for say assaulting me or committing some other crime against me, I don't get to keep the fine. If I want to be made whole, I have to sue them in civil court. There is nothing that says criminal or even civil fines must be paid to the victim.

  • Lost_In_Translation||

    Point, set, match to John. What's with the weaseling going on here lately?

  • Brandon||

    So you didn't actually read the article either?

  • Lost_In_Translation||

    Read it. Randazzo missed the whole scandal.

  • ||

    Reason has always been a mix of good ones and weasels. I figure the same is true of any opinion mag, really.

  • Rhywun||

    Most of that settlement has been put towards helping current homeowners struggling with paying their mortgage by reducing their monthly payments.

    I don't feel like paying my rent this month - how bout they cut me a check?

  • BarryD||

    No kidding. That part doesn't make sense.

    It should have been spent, supplying everyone who was foreclosed on erroneously, with a lifetime supply of top-shelf liquor, and the chance to bullwhip three of bank executives of their choice for 5 minutes each.

    I'd call it done, at that point.

  • John||

    If you don't feel like paying rent and your landlord is too stupid or lazy to properly foreclose on your lease, then you might get to live free for a while. Sometimes the breaks go your way.

  • nicole||

    I don't feel like paying my rent this month - how bout they cut me a check?

    No, no, you are a renter! That means you cut them checks. Figuratively speaking, at least.

  • Stormy Dragon||

    This is the sort of article that gets libertarians wrongfully stereotyped as shills for big business. The "so-called" scandal? They "only" processed 315,000 claims?

  • BarryD||

    True.

    The banks in question have little or nothing to do with the free market, either.

    They should, of course. But they don't. There's really nothing about them that we as libertarians really should defend.

    Had they been allowed to fail, and regional banks been allowed to take their places, then we might have something to defend. But otherwise, the snake pit of national banks is not worth discussing. Regulators vs. bailed out bankers is like Crips vs. Bloods. Whoever wins, it's all the same.

  • ||

    No, actually. The number of claims processed is mentioned in the article but not the subject of it. Did you really bother to read the whole thing?

  • BarryD||

    Why don't you go fuck yourself?

    If an article is full of zingers, like this one, we're not going to ignore them all because of the last paragraph.

  • ||

    I'd hardly say mentioning how many foreclosures they've gotten through is a "zinger". Stormy acts like the mention is something important to ding him over, which is absurd.

  • Stormy Dragon||

    It's not the mention of the number, it was the use of the word "only" as though hundreds of thousands of acts of fraud and perjury are no big deal.

    If the article was about how the banks are colluding with regulators to cover up the banks crimes in a way that suits the regulators political agenda without addressing the actual victims, it would be a great article. But Randazzo continuely slips into dismissive language that suggests the scandal itself is much ado about nothing.

  • ||

    The language doesn't indicate that at all. When it's a couple hundred thousand out of 4.4 million, "only" accurately describes how little out of the total amount that is. You're reading something he's not saying. There's context there, but it takes a bit of imagination to claim that as dismissive of the fraud itself. That this post is focused on how politicians use crisis to get more money doesn't say anything about how serious he thinks the bank/regulator cooperation is.

  • Rasilio||

    315,000/4400000 = 7.16%

    I would call a failure rate over 1% (where failure is defined as ANY missing paperwork or improper signings) to be a colossal failure worthy of criminal negligance charges against bank officers

  • ||

    Ras, I never said this wasn't worthy of criminal negligence charges.

  • KPres||

    "It's not the mention of the number, it was the use of the word "only" as though hundreds of thousands of acts of fraud and perjury are no big deal."

    Uh, huh. And how many people lie about their income in order to get a home loan? Where's your righteous indignation at that?

  • T||

    The outrage at individual bad actors is, and should be, less than the outrage at a system set up to abuse individuals.

  • BarryD||

    "If the article was about how the banks are colluding with regulators to cover up the banks crimes in a way that suits the regulators political agenda without addressing the actual victims, it would be a great article."

    Ding ding ding ding

  • The Late P Brooks||

    Many of the people who had their homes taken were well behind on their payments

    This merely proves the loans were predatory.

  • The Late P Brooks||

    the evidence suggests homeowners who were current on their payments, but lost their homes, were an anomoly. (The Independent Review has only processed 315,000 claims over the past two years, according to ProPublica.)

    315,000? Claims total of any type, or claims which proved to be erroneous foreclosures?

    Presumably, the claims would be heavily weighted toward those with an expectation of successful reversal (or other beneficial outcome). An "anomalously" small percentage of improper foreclosures from a pool weighted toward success leads me to believe this was not a major problem.

    That does not mean the banks should be let off the hook; it means I see this as a grandiose and ultimately pointless show of concern on the part of a government willing to spend ten dollars for every penny "recovered".

  • Stormy Dragon||

    If you were one of the people wrongfully thrown out of their house, would you still consider it "not a major problem"? That the banks only stole someone's home in a small percentage of cases doesn't make it okay.

  • Lost_In_Translation||

    But that's the thing. Legally everyone thrown out of their home without any evidence of a deed in trust was wrongfully evicted. They may have agreed to it in te loan, but that doesn't mean they had to leave their homes just because the bank wanted to pretend it retained the paperwork. It's like leaving your home because the credit card company wants to sell it to pay off your debt. You don't have to and shouldn't at all. You just have to abide by bankruptcy proceedings if you cannot pay off your debts and whatever is agreed to there.

  • BarryD||

    So you should just take your chances in a firefight with the Sheriff's Deputies?

  • Jgalt1975||

    That process has brought something striking to light: most people were properly foreclosed on. Many of the people who had their homes taken were well behind on their payments; robo-signing just sped up a process that was going to happen anyway.

    I'm pretty sure that nobody ever claimed a majority of people were incorrectly foreclosed on. Probably nobody even claimed that 10% were incorrectly foreclosed on. But given that literally millions of foreclosure actions have been filed in the last five years, even an error rate of 1% means tens of thousands of people lost their homes, which is kind of a big deal given that for most homeowners their house is their single largest asset.

  • Lost_In_Translation||

    The use of the word "properly" foreclosed on suggests that a secured loan was still in place. For many without documentation such a situation did not exist. The bank had a promissory note but lost the deed in trust. So essentially they were sitting on an unsecured loan, just one fucking large credit card bill. They just wanted to pretend they didn't just massively fuck themselves in the ass that big.

  • Stormy Dragon||

    There's also the issue that even if the owner was correctly foreclosed on, did the proceeds from the foreclosure sale actually end up going to the right party?

    That is, if BoA wrongfully forecloses on John Doe's house when Small Town Credit Union actually owns the mortgage, the fact that John Doe was actually behind in his payment doesn't mean that a crime hasn't occured, just that the victim is the credit union rather than John Doe.

  • Lost_In_Translation||

    +a brazillion, the banks fucked over homeowners and possibly promissory note holders (in MBS) because of their awful documentation. And who came out mostly whole. Hmmm, ever roamed the halls of Citicorp? They're not skimping on the decorations...

  • Lost_In_Translation||

    Look, it's simple. Banks converted a whole bunch of secured mortgages into unsecured loans an then pretended they could collect on them vial ethane rules. Sorry, fail, an unsecured loan could only proceed through a bankruptcy hearing and in that case in several states, homesteading laws rein supreme. Banks fucked up royally an were given the biggest mulligan in the history of the world. Suck it up Randazzo. The US government should have just thrown down the ban hammer on them rather than kid glove them back into solvency.

  • ||

    It's sort of weird that people keep "dinging" Randazzo over what was done to the banks when he says multiple times that punishing them for wrongdoing is right. Suck it up.

  • ||

    Randazzo's not grasping the "wrongdoing" here. It's not just "throwing the wrong people out of their houses" but "intentionally screwing up the paperwork that makes title to property clear and enforceable".

  • BarryD||

    And by doing so, threatening the entire system of land title that makes American real estate a safe investment. That is risking something many orders of magnitude bigger than the losses from the housing bubble's bursting, and something that would hurt all of us, even those who didn't have a mortgage at all.

  • Lost_In_Translation||

    Do you wet your pants every time the news comes on or just when the talking heads go into their "serious" voices?

  • Lost_In_Translation||

    Nevermind, read this post in the wrong light.

  • The Late P Brooks||

    If you were one of the people wrongfully thrown out of their house, would you still consider it "not a major problem"? That the banks only stole someone's home in a small percentage of cases doesn't make it okay.

    I'll give you the benefit of the doubt, and assume I was unclear.
    Brevity has that effect.

    My point is not that it's "no big deal" for the individuals affected; it's not such a big deal that it justifies a vast expensive new bureaucratic apparatus specifically tasked to root it out. There are already laws in place to deal with this type of malfeasance.

  • The Late P Brooks||

    I go with the Georgist view (in part) on it that as the government grants the deeds, they can collect the rents, in the economic sense. It also goes with his view that the government had no right to a claim on our labor, so any improvements are untaxed.

    And on what basis does the King establish the taxable value of my twenty acres of unproductive land?

  • robc||

    Some completely arbitrary one, more than likely.

    It aint a perfect system.

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