The $25 Billion Foreclosure Settlement: Breakthrough or Raw Deal?

respres/Flickr

Fight disinformation: Sign up for the free Mother Jones Daily newsletter and follow the news that matters.


On Thursday, after months of closed-door negotiations, plenty of hand wringing, and too many leaks to the media to count, 49 state attorneys general, the Justice Department, and five mega-banks announced they’d reached a legal settlement over fraud in the mortgage servicing and foreclosure processes.

The settlement is worth an estimated $25 billion, according to the Justice Department. The banks involved—Ally Financial, Bank of America, Wells Fargo, Citigroup, and JPMorgan Chase—agreed to reduce principal home loan debt for a million homeowners while paying $2,000 to 750,000 more households that had lost their home to foreclosure. Crucially, the settlement doesn’t entirely absolve banks of alleged wrongdoing, leaving the door open for AGs like New York’s Eric Schneiderman to proceed with foreclosure fraud lawsuits of their own. Depending on whom you ask, the terms of settlement are a key breakthrough, a first step toward righting the foreclosure abuses of the past decade, or a total sham.

Sen. Sherrod Brown (D-Ohio) called the deal “an important victory for homeowners and communities devastated by the housing crisis.” Michael Calhoun, president of the Center for Responsible Lending, said in a statement that the deal “will help build a stronger housing market while keeping more people in their homes. But while a significant step toward fixing the foreclosure crisis, this settlement was never intended or able to provide a comprehensive remedy. Much more work is required.”

Some experts and observers, however, were plainly dismissive of the deal. Yves Smith, who runs the blog Naked Capitalism, rattled off 12 reasons why “you should hate” the foreclosure settlement, including the deal’s overall price tag, the paltry $2,000 payout for homeowners, and her belief that the deal papers over deeper problems with property titles and the foreclosure process itself. “As we’ve said before,” she wrote, “this settlement is yet another raw demonstration of who wields power in America, and it isn’t you and me.”

Then again, the AGs’ foreclosure settlement was never going to fully address the myriad problems with the foreclosure process. Consider MERS, the industry-backed electronic mortgage registry that greased the foreclosure pipeline and enabled many of the dubious practices that led to the housing crisis. MERS has been in use since 1995; it’s an entrenched part of the housing market. It will take much more than a nationwide settlement to tackle the many problems MERS has wrought.

There’s also the problem of Fannie Mae and Freddie Mac and their role in the foreclosure crisis. As myself and others have reported, the two government housing giants spawned foreclosure mills, the assembly-line-like law firms that skirted the law as they kicked people out of their homes. They also reportedly squashed a plan to write down the debt of homeowners who owed more than their houses were worth. There’s no remedying the foreclosure crisis without reforming Fannie and Freddie.

The settlement, in other words, is far from a cure-all. Best-case scenario, consumer advocates say, the deal is just the beginning of a reckoning for the fraud and abuse that ran rampant. “Today’s announcement of the mortgage foreclosure settlement represents a step toward righting the wrongs committed by the banks,” said Phil Angelides, the chair of the now-defunct Financial Crisis Inquiry Commission, “but there are still miles to go. “

AN IMPORTANT UPDATE

We’re falling behind our online fundraising goals and we can’t sustain coming up short on donations month after month. Perhaps you’ve heard? It is impossibly hard in the news business right now, with layoffs intensifying and fancy new startups and funding going kaput.

The crisis facing journalism and democracy isn’t going away anytime soon. And neither is Mother Jones, our readers, or our unique way of doing in-depth reporting that exists to bring about change.

Which is exactly why, despite the challenges we face, we just took a big gulp and joined forces with the Center for Investigative Reporting, a team of ace journalists who create the amazing podcast and public radio show Reveal.

If you can part with even just a few bucks, please help us pick up the pace of donations. We simply can’t afford to keep falling behind on our fundraising targets month after month.

Editor-in-Chief Clara Jeffery said it well to our team recently, and that team 100 percent includes readers like you who make it all possible: “This is a year to prove that we can pull off this merger, grow our audiences and impact, attract more funding and keep growing. More broadly, it’s a year when the very future of both journalism and democracy is on the line. We have to go for every important story, every reader/listener/viewer, and leave it all on the field. I’m very proud of all the hard work that’s gotten us to this moment, and confident that we can meet it.”

Let’s do this. If you can right now, please support Mother Jones and investigative journalism with an urgently needed donation today.

payment methods

AN IMPORTANT UPDATE

We’re falling behind our online fundraising goals and we can’t sustain coming up short on donations month after month. Perhaps you’ve heard? It is impossibly hard in the news business right now, with layoffs intensifying and fancy new startups and funding going kaput.

The crisis facing journalism and democracy isn’t going away anytime soon. And neither is Mother Jones, our readers, or our unique way of doing in-depth reporting that exists to bring about change.

Which is exactly why, despite the challenges we face, we just took a big gulp and joined forces with the Center for Investigative Reporting, a team of ace journalists who create the amazing podcast and public radio show Reveal.

If you can part with even just a few bucks, please help us pick up the pace of donations. We simply can’t afford to keep falling behind on our fundraising targets month after month.

Editor-in-Chief Clara Jeffery said it well to our team recently, and that team 100 percent includes readers like you who make it all possible: “This is a year to prove that we can pull off this merger, grow our audiences and impact, attract more funding and keep growing. More broadly, it’s a year when the very future of both journalism and democracy is on the line. We have to go for every important story, every reader/listener/viewer, and leave it all on the field. I’m very proud of all the hard work that’s gotten us to this moment, and confident that we can meet it.”

Let’s do this. If you can right now, please support Mother Jones and investigative journalism with an urgently needed donation today.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate