After months of closed-door negotiating, a massive, multi-billion-dollar deal between big banks and state and federal regulators has been announced to partly resolve legal issues surrounding the questionable practices that have prevailed in documenting home mortgages and foreclosures.
But after a quick scan of initial news reports, it seems evident to me that the real impact of this deal on both homeowners and banks won’t be clear for months.
The deal itself is too complex to enable an expert–much less you or me–to quickly develop a well-informed point of view on what it all means. And there is no quick way to rework millions of mortgages caught up in the mortgage documentation mess.
UPDATE: Here’s a Q&A from Associated Press that offers the best overview I’ve seen at this point.
The terms of this deal do provide evidence that government regulators are willing to push much harder on these kinds of matters than they were 10 years ago, when Household International agreed to a $484 million settlement. That deal included no reductions on loan principal, only minor changes to loan terms, and nothing for those who had already lost homes in foreclosure. The deal also required individual homeowners to sign away their rights to sue the company in return for a modest share in the money that was distributed.
The latest settlement will offer a cash consolation prize of as much as $2,000 to those who lost their homes due to improper foreclosure practices. Some mortgage borrowers will qualify for principal reductions. The states did not bargain away their right to file criminal charges if they choose to pursue them. And borrowers who have kept their mortgages current, as well as those who are delinquent, may get some help.
But in this account in the Washington Post, debt counselors working with distressed borrowers don’t seem overly impressed by the amount of relief that people will get.
At the Naked Capitalism blog, Yves Smith picks the deal to pieces. Smith is among those who warned that financial Armageddon was heading our way, at a time when most government officials and big banker types were reassuring us that the fallout from “the subprime mortgage problem” posed no threat to the banks or the larger economy. She continues to call down fire and brimstone on the banking system and the people who are paid to regulate it.
Here is Washington Attorney General Rob McKenna’s take on the deal and its impact on this state.