Today, the Federal Reserve and the Office of the Comptroller of the Currency announced a new settlement with ten companies in the mortgage market, including megabanks like JP Morgan Chase and Bank of America. The settlement halts a review of foreclosures and directs the banks to pay out about $8.5 billion to homeowners.
Unfortunately, while that sounds like a lot of money, it’s not really enough to compensate the millions of people who went through foreclosure in past years, and it hurts the efforts to answer questions about how many people were wrongly foreclosed on and why the system failed so badly. In a time when we need to be putting more effort into keeping people in their homes and removing banks’ incentives to engage in misconduct, this settlement falls way short of real accountability.
“I have serious concerns that this settlement may allow banks to skirt what they owe and sweep past abuses under the rug without determining the full harm borrowers have suffered,” said Rep. Elijah Cummins, a Maryland Democrat who sits on a key House oversight committee.
The upshot of the settlement seems to be that a family that went through a wrongful foreclosure would get a few thousand dollars in compensation—if the bank can find them.
Writing in the New York Times, Gretchen Morgensen calls the settlement a big win for banks looking to get away with bad behavior:
It means more of the same: no accountability for financial institutions and little help for borrowers. …If you start to hear rumbling that the reviews didn’t turn up many misdeeds, you can discount it as nonsense. One could easily argue that this reported settlement was pushed by the banks so they could limit the damage they would have incurred if an aggressive review had continued.
Heidi Moore, economics editor for The Guardian, says that this settlement and a related settlement between Bank of America and Fannie Mae don’t offer much hope that homeowners will actually get help:
These settlements are good for banks, who are now able to put part of the mortgage mess behind them, and good for regulators, who can claim a victory. They are less good for homeowners, who often get caught up in red tape when trying to get mortgage help.
As we’ve written about frequently, the mortgage crisis and our efforts to sweep up the mess are a national embarrassment. Millions have undergone foreclosure and millions more have underwater mortgages—and we;’ve only begun to scratch the surface of how much of the crisis was due to deliberate fraud and bad practices by banks. It’s a major drag on our economy, and many of the finance-industry actors responsible have gotten away easy. We need to build policy around what homeowners need, not just banks. This settlement is another example of how far we have to go to get there.