Snap-O Fact #101

In of itself, the $25 billion settlement is not very significant considering that one in five Americans with mortgages owe the banks more than their homes are worth, and these home owners are underwater by an average of $50,000 each. This is a collective negative equity of nearly $700 billion. 

It's a little complex but the reductions in loan principal are expected to account for the payout of much of the $25 billion. By writing down principal, officials hope fewer people will eventually default on their loans. In addition, the $25 billion could produce $40 billion in actual mortgage relief, officials say. That's because the settlement includes formulas that give banks differing amounts of credit depending on which loans they write down.

The important part of all of this is that the settlement will not cut off other important avenues to hold the banks accountable. If the federal task force is fully resourced, as expected, and left to operate unhindered by the White House1, it could achieve hundreds of billions in reduced principal for underwater homeowners and criminal indictments for bankers who broke the law and helped drive our economy off a cliff. And other state attorney generals can continue investigating Wall Street’s role in causing the housing crisis to ensure that the banks that caused the crisis are held accountable for their wrongdoing. 

The allegations are dire for the banks who were essentially hiring people to impersonate banking officials and crank out thousands of fraudulent signatures by a technique known as robosigning. This unsavory dealing with homeowners clearly includes the crimes of perjury and forgery, and those are felonies.

Note that what is really bad for the banks is that robosigning is the key into the much larger world of securitization fraud, which is the real crime here. Robosigning would have never been necessary if the banks hadn’t bundled up all these mortgages and sold them off to the highest bidder in the first place. What’s even worse for the banks is that robosigning provided the proof to investigate the banks for the larger fraud.

At the final day of reckoning, when the Schneiderman wraps up his investigation, no one will remember the paltry robosigning settlement, they will have their eyes on the fair compensation that our chess master has brought to beleaguered homeowners and the help this will give to the housing market and the economy on the whole.

President Obama is now reengaged and is anxious to see the job done.

Bank Settlement: $25 Billion Down, $675 Billion to GoThose who are both open minded and paying attention to the Obama technique, are clear that the President is a master chess player who often seems to be in check but ends the game check-mating his opponent. Although his deliberate strategy causes many kibitzers to see only the last and the next move, the President is thinking ten moves ahead. He has played his winning game time after time yet many still jump to question his moves without seeing the end game. President Obama accomplished two major check-mates of this caliber last week. We will address one of them here. 

During the week of February 6, 2012, a $25 billion settlement was announced between the Justice Department and the Banking Industry in which big banks will pay up for a small portion of their bad deeds in the home foreclosure crisis. This deal seems to represent small progress on a huge problem, like taking the first pawn while the entire game remains to be played. Critics came out of the woodwork. It was not only the expected noise from the right about anything the President does, many slings and arrows were shot from Mr. Obama's allies. However, these missiles were shot prematurely before the deal was fully understood. There is still the room and the time to make big progress on this big problem. So don't count on finding many good points in the deal itself, because there aren't a lot. In fact, the main win is what is NOT in the deal.

New York Attorney General Eric Schneiderman, a lead investigator into the mortgage collapse that wobbled the U.S. economy, rejected a settlement with major banks a year ago because it shielded them from future investigations. For his efforts, he got bounced off a committee of states attorney generals negotiating the settlement; more than 40 of them wanted to take the deal.

But after digging in and holding his position, the soft-spoken, 57-year-old lawyer from Manhattan won the day. The states ended up with billions in settlement money, while Schneiderman was tapped by President Barack Obama to co-chair a federal task force to keep the investigation going. This was important because the $25 billion nationwide settlement with five major mortgage banks only addressed robosigning fraud. Schneiderman noted that his authority to investigate and prosecute other securities fraud, has been fully preserved by the President.