’..the banks are paying out a mere $5.8 billion, while getting bullet-proofed from prosecution for the fraud perpetrated’
…To understand why the settlement is a steaming pile of s***, we have to understand two things: What the problem is, and what the settlement brings to the table to solve the problem.
This is the problem: About 20% of all homeowners are underwater, adding up to about $700 billion in negative equity in the U.S. housing market today. That is, if you add up the difference between what underwater homeowners owe on their mortgages and what they could realistically get in the current housing market, it totals $700 billion. On average, that’s about $50,000 per house.
Additionally, 750,000 people lost their homes to foreclosure between 2008 and 2011—of which many (most?) were processed improperly. Processed illegally, in many (most?) cases.
As to whether “many”, “most” or “all” of those foreclosures were processed merely improperly or in fact criminally, we’ll now never know: The settlement releases the banks from prosecution for these 750,000 foreclosures.
That was one part of the settlement: No Federal prosecutions.
The other part of the settlement was how much the banks had to pay. And that dollar figure is pathetic when you look at the headline number—but even worse when you look at the actual number.
The mortgage settlement totals just shy of $25 billion. But of that figure, only $5.8 billion is “fresh money”—that is, money that the banks have to put up out of pocket.
The rest is loan modifications—that is, changing one loan for another. Essentially an accounting move, not a cash-bleeding penalty.
So the banks are paying out—in total—a mere $5.8 billion, while they are getting bullet-proofed from Federal prosecution for all the mortgage shenanigans they were carrying out.
That is what the ballyhooed “Mortgage Settlement” comes down to: The Obama administration plea-bargained a serial killer down to a speeding ticket.