This morning, the federal government and state Attorneys General announced a major settlement through which big banks will offer some compensation for fraud and consumer abuses that helped cause the financial crisis. Holding the banks responsible for their misconduct is a good thing—but, unfortunately, this settlement is disappointing in its scale and in the leeway it gives to these banks.
The settlement is set to include 49 states (all but Oklahoma, whose Attorney General, Scott Pruitt, apparently objects to the idea that banks who broke the law should face any penalty whatsoever).
Here’s what we do know about the deal. It represents about $26 billion coming from the banks, of which the majority will be used to reduce the principal on underwater mortgages. For homes that are underwater, that’s a good thing—but the housing collapse led to $700 billion in lost home value, far beyond what this settlement will cover.
Some homeowners affected by specific abuses of the foreclosure process, like “robo-signing,” will be compensated—but not much, certainly far less than the loss represented by a hasty or unjust foreclosure.
The remainder of the money from the settlement will go to other forms of homeowner assistance, like helping mortgage-holders refinance at lower rates.
The amount of money we’re talking about here will be a help to some hard-hit homeowners, but it’s way out of scale to the size of the problem.
The other question about the settlement is one of responsibility and justice, not just monetary compensation. On the bright side, the settlement comes alongside a new task force to investigate misconduct in the housing market—but, unfortunately, it also releases the banks from liability for many of the most destructive foreclosure-related practices. We have laws against fraud for a reason, and it’s the responsibility of our officials to actually see to the enforcement of those laws.
For now, the first part of this fight has come to a close—and, despite the flaws in this settlement, working people have won some victories over the banks along the way. But here are the questions we’ll be asking as we move forward. Will homeowners who need it actually get the help this settlement provides in a timely manner? Will the investigation task force be able to uncover and actually penalize misconduct on the part of the banks? And, most importantly, will the settlement and the next steps have enough force to prevent large-scale abuses like this from happening again?
(Image via Felix Salmon)