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Filler: Bank of America mortgage settlement doesn’t bode well
So exactly what are we to think of the $8.5 billion settlement of the mortgage mess between the United States government and 10 big banks announced this week? That is, if we can bring ourselves to think about it at all.
The whole story has gone so far beyond the comprehension of normal people that it’s impossible to know whether that’s a lot of money or a little, a fair settlement or an unfair one.
Even explaining it is confusing: The settlement is to satisfy claims that the banks used abusive and improper foreclosure practices, and it ends a “case-by-case” review of individual foreclosures that, had it continued, would have taken years. The deal sets aside $3.3 billion to go to the 3.8 million borrowers who have alleged foreclosure abuse. The other $5.2 billion is to aid homeowners in arranging loan modifications, debt forgiveness and short sales.
This is separate from the $10 billion Bank of America has agreed to cough up to settle charges the lender it bought in 2008 for $4 billion, Countrywide, addled federal mortgage backer Fannie Mae with horrendous, irresponsible loans. It’s also separate from a $25 billion deal between the big banks and 49 states that settled similar charges and, in theory, will help homeowners who were mistreated.
Are these penalties appropriate? Too lax? Is this the end of the investigations? Merely the beginning? We are dealing with both the misuse of financial instruments and lax behaviors that led the economy to crater in 2008, as well as the bad behaviors these companies exhibited afterward.
Each of these settlements, once banks agree to them, ends a certain type of investigation and gives the banks certainty in knowing what their liability is. But the best writers in the business press and the keenest thinkers in the financial world seem to feel, as consumer advocates do, that the banks are getting off terribly easy.
And the fact that the banks agreed to the deals, and no individuals are facing any kind of legal penalties, implies that’s true. If the terms weren’t generous to the banks, in comparison to what they could have faced, they would have fought till their dying breath, in my opinion.
But what’s certain is this: Normal people can no longer understand the issue, and thus are tuning it out. Incomprehension has, as it invariably does, led to apathy.
And that doesn’t bode well for regulating these folks in the future, or avoiding the pitfalls that got us where we are today.