The previously announced settlement among federal authorities, state attorneys general and the five money center banks involved in so-called “robo-signing” probe is in the hands of the Federal Court.
In pleadings filed yesterday US and state officials memorialized the charges against the banks including so called “robo-signing” (preparing, executing and filing documents without proper review), charging ‘excessive or improper’ fees for default related services, failing to gather or “losing” loan-modification paperwork, “wrongfully” denying loan modification applications and giving “false or misleading” information to consumers.
The Wall Street Journal notes that the agreement requires the banks to provide principal relief and other borrower assistance valued at $17 billion, about $5 billion will be paid in fines, while $3 billion will be given to borrowers in $2,000 lump sum payments whose homes are under water.
Now the question remains if the $25 billion settlement will pass the “smell test” of the Judge, particularly language where the banks do not admit or deny any wrong doing. However, given that fraud is not included in these charges, and the fact that the US Treasury scoops up a cool 5 billion$, chances are the deal will be finalized.
Also, former North Carolina Banking Commissioner Joseph A. Smith Jr. will serve as the monitor for the settlement. His task will be to ensure that the terms of the agreement will be met over the next 3½ years where the banks could face additional penalties of up to $1 million per violation of the order.
In a related story, Reuters highlights how consumer groups contend that the settlement should “go further than past efforts.”
Ira Rheigold of the National Association of Consumer Advocates reportedly said that “the bank servicers have really done a terrible job of servicing homeowners’ mortgages.”
Moreover, during the extended negotiation critics questioned whether the government was aggressive enough in pursuing the “alleged” misconduct while “state and federal negotiators also described the talks as akin to herding cats, with so many parties involved.”
Finally, the banks are also paying tens of millions of dollars to resolve whistleblower lawsuits alleging lenders defrauded the government in seeking federal mortgage insurance for some risky loans. This is interesting to note since federal mortgage insurance is commonplace in FHA loans and mortgage insurance is then only required if minimal down payments on purchase mortgages are involved.
And with respect to FHA loans, many of the mortgages set aside to be modified might be in the form of federally guaranteed loans and according to some observers the FHA is in the same shape as Fannie and Freddie.
The bottom line: the housing market still has a long road to recovery and the broader economy will not see significant growth until the real estate sector rebounds.
Kyle Colona is a New York based freelance writer and a Feature Writer for the Compliance Exchange and Wall Street Job Report. He has an extensive background in legal and regulatory affairs in the financial services sector and his work has appeared in a variety of print and on-line publications.