When New York Attorney General Eric Schneiderman pounced on Wells Fargo and Bank of America for allegedly violating terms of the $25 billion national mortgage servicing settlement, it became clear the mortgage finance system is perennially buried in quicksand – and no one is committed to its long-term rescue.
Every settlement reached over legacy mortgage issues seems to lead to even more litigation. And given the state of the American legal system it’s naïve to think anyone is benefiting from any of this … other than lawyers of course.
It was prudential regulators and State AGs who reached an accord with banks asking them to pay $25 billion in 2012 – a huge chunk of money, though many complain it's still not enough – to settle foreclosure-processing issues. The deal also established a national monitor to oversee servicers to ensure compliance with guidelines outlined in the agreement.
But this year, the OCC and Fed turned their backs on the independent foreclosure review portion of the deal, calling it too complex and costly.
By the time they reached this conclusion, millions of dollars had been spent on consultants to handle the process of analyzing foreclosures from 2009 and 2010 for the purpose of tracking and documenting abuses against homeowners.
Despite the time invested, regulators called the process too costly and complex.
The resolution? Well, another settlement of course.
The independent foreclosure review part of the deal was replaced with an $8.5 billion settlement – with more than $3 billion going to borrowers potentially harmed by foreclosure processing issues stemming as far back as 2009 and 2010.
It looked like a Hail Mary pass, with someone saying "hey, let’s get this thing over with and move on."
But we’re still stuck today and all of the so-called 'game over' resolutions, national standards and lawsuits seem to lack the power to get anything done long-term for the health of not only harmed homeowners, but the entire housing market and national economy.
Every settlement seems to lead to another complaint, and then maybe another settlement following that complaint.
In many cases, harmed borrowers – many of whom are part of foreclosure situations that were never entirely studied or analyzed – received checks in amounts as low as $300. Depending on who you ask, that's too much or not enough. So where's the sense in arbitrary amount setting?
Even mailing those checks has become a huge problem. A consulting firm – Rust Consulting – was put in charge of organizing the distribution of the latest IFR settlement checks.
During one of the first mailings, some of the checks bounced, a situation quickly resolved by the Federal Reserve.
Then, the same consulting firm caught heat from the press when settlement payments from Goldman Sachs [stock GS] [/stock] and Morgan Stanley [stock MS] [/stock] fell short of intended amounts.
Members of Congress – namely CFPB architect turned Senator Elizabeth Warren – are pushing for more information on the now defunct national foreclosure review process.
They're asking questions. Why is there no data on what types of abuses allegedly occurred? Did they occur and to whom? The game is going into overtime.
Instead of answers, the market was handed more questions – which inevitably leads to more long-term blaming and finger-pointing.
The Government Accountability Office also is unsure about the $8.5 billion settlement and even informed Congress during a hearing on the Hill that its analysis of the foreclosure review is far from over.
But the final icing on the cake was Schneiderman’s recent decision to sue BofA [stock BAC] [/stock] and Wells Fargo [stock WFC] [/stock] over alleged violations of the National Mortgage Settlement.
His office claims 339 servicing violations were documented.
What’s not lost on the servicing side of the business is the irony that BofA is waddling under the originations malfeasance of Countrywide – a firm snatched up by BofA during the subprime meltdown.
But to sum it up: After years of settlements, new rules and countless congressional hearings, the NY AG is claiming in his suit that we are back to where we essentially started.
So who’s to blame? Perhaps many.
And that’s why it’s time to declare: Short-term resolutions to long-term problems are not working out. They are the definition of insanity: doing the same thing over and over again and expecting a different result.