A proposed federal and state settlement with big U.S. banks aimed at slowing the pace of foreclosures looks increasingly unlikely. And that's for you optimists out there. The culprits: mind-blowing intransigence by financial industry leaders, weak political leadership and time.
Bankers, state legal officals and financial regulators began huddling this week in Washington to discuss the pact, under which large loan servicers would be expected to cut mortgage principal for "underwater" homeowners. It also would tighten loan-servicing standards, a major roadblock in borrowers obtaining getting mortgage relief. So far, though, it's not going well.
Iowa Attorney General Tom Miller, a leader in the talks, made the usual noises about such negotiations requiring patience. But it's clear financial firms are digging in, reinforcing the lines and preparing the poison gas. JPMorgan Chase (JPM) CEO Jamie Dimon said any talk of reducing loan balances is "off the table." And into the trash, presumably. Also moot, as far as the banks are concerned, is any notion of their paying a financial penalty as restitution to borrowers who were wrongly denied a loan modification.
We don't need no stinkin' foreclosure plan
Worse, an alternative plan proposed by banks and servicers not only indicates no willingness to compromise, but would actually leave homeowners even worse off than they already are. How laughable is the industry's counteroffer? Consider this. The government wants borrowers who are seeking a loan modification to have a single point of contact with servicers, rather than having to deal with 10 or 20 people, as is common today. Here's how the banks tweak that proposal, according to a document laying out their plan:
Servicer will establish a single point of contact, which may be more than one person....Let's make it an even dozen, shall we? The plan also says nothing about eliminating the high, unnecessary fees servicers apply to soak homeowners and next to nothing about halting foreclosures when a person has already applied for a mod. Here's how Georgetown University law professor Adam Levitin describes the industry proposal:
I can sum it up in two words: Drop dead. Or two letters: F.U. This proposal is so pathetically thin that it's not a good faith counterproposal. This document only deals with servicing standards -- nothing in it whatsoever about penalties, modification quotas, etc. But even on servicing standards it is a bunch of empty promises to have internal controls and try harder.What a political vacuum looks like
Much of the problem here stems from the government officials' weak negotiating position. Some federal agencies, like the FDIC, favor driving a harder bargain; others, notably the Treasury Department, are far more conciliatory. Some state AGs insist on principal reduction, while others are backing off on that requirement. And for all of President Obama's rhetoric about needing to help homeowners, the White House is effectively washing its hands of the matter.
Without any political pressure on them to budge, or as Levitin notes even negotiate in good faith, banks are standing pat. The longer negotiations drag on, the more likely state and federal officials will settle for a face-saving compromise that essentially preserves the status quo.
I wish I had better news to report on the prospects for real progress on foreclosures, and stranger things have happened. But it's not looking good.
- Feds to Homeowners: It's Your Own Damn Fault Our Foreclosure Program Failed
- Foreclosure Express: Why the Feds Let Banks Get Away With Murder
- House Poor: How Home Foreclosures Cost Taxpayers a Bundle
- Open Wide: Why Banks Should Take Their Medicine on Foreclosures
- How to Spin a Failing Program as a Success: The Treasury and HAMP