I've been debating all day about whether or not to write this post about today's announcement about the $25 Billion foreclosure abuse settlement between the US government and 5 major banks. As I understand it the settlement includes several provisions as to where the money from the banks will go:
- $1.5 Billion goes to borrowers who went through foreclosure between September 2008 and December 2011. These people are expected to receive $1,500 to $2,000 each, depending upon the number of borrowers filing a claim.
- $3.5 Billion in cash penalties goes to the federal government and the states
- $17 Billion is targeted for principal reductions for people who are underwater on their mortgages and delinquent in their payments. However, some suggest that the total bill for the principal reductions could be as high as $34 Billion.
- $3 Billion will go towards refinancing mortgages for people who are underwater on their mortgages but current with their payments.
- Of the total, $18 B of the mortgage settlement funds are going to end up in the state of California?!?!?!?
OK. I'm really curious as to what people think about this deal. Does anyone else think that something is out of whack here? There is no question that the banks violated the law with their foreclosure shortcuts. However, I have not read much about any real damages suffered by the victims of this whole mess. If we look at the way the settlement ended up we could conclude that the damages totaled no more than $1.5 B because that was what the victims were awarded.
Then, understandably, there are penalties - $3.5 Billion worth - for breaking the law. That makes sense. But what's this other $20 Billion about? 80% of the settlement funds are going to giveaways towards people who are underwater on their mortgages and 85% of those funds are going to people who are delinquent on their mortgages. What does any of this have to do with foreclosure abuses? And when $17+ Billion goes to people that aren't paying their mortgages what does that tell the people who are paying their mortgages?
When you read some of the comments on this deal it becomes clear that what is really driving the government is an intense desire to find someone to blame for what has happened to the housing market and the banks are a very easy and attractive target. Here is what the critics are saying about the foreclosure abuse settlement.
I've heard this settlement referred to as a stimulus program but that is a lie. All this is is another wealth redistribution scheme and when all you do is slice the pie up differently it doesn't make the pie any bigger.