The Housing Crisis - updated

When Congress was debating G.W. Bush's warrantless surveillance of American citizens (Allegedly, he and his people were just monitoring al Qaeda, but there's never been any formal, credible confirmation of that), US telecommunications companies made it quite clear that they didn't wish to be held accountable for anything they did. Congress was very accommodating and failed to apply what we quaintly term the “Rule of Law.” Apparently, the same general rule applies to banks and their mortgages and their wrongdoing vis-a-vis homeowners.

Bank executives argue that New York attorney general Eric Schneiderman is using the lawsuit to go after claims already covered under the settlement

The NY AG Eric Schneiderman is the fellow who has distinguished himself as the hero of the foreclosure crisis that has already resulted in several million homeowners losing their dwellings. The chart at the Calculated Risk blog, the “Total Delinquent and Foreclosure Percent by Month” shows that foreclosures held steady at under 5% per month until around mid-2006 and then stopped rising at the end of 2010 at a little under 11% per month. The drop in foreclosures at that point was not due to a greater rate of compliance and solvency among homeowners, “Foreclosures were in full delay mode in 2011,” which means that “only” 804,000 homes were repossessed and “foreclosure filings jumped 21 percent in the third quarter of 2011,” meaning that banks are cleaning up their procedures and clearing their decks for many, many more foreclosures.

The problem, as far as the mega-banks (Ally Financial, Bank of America, Citigroup, J.P. Morgan Chase, and Wells Fargo) are concerned, is that they thought they had a 50-state settlement negotiation in place that would wipe the books clean with a minimal slap-on-the-wrist fine for them ($25 billion) and continued or slightly altered foreclosure mills for homeowners. But in August 2011, Schneiderman made it clear that there was far too much illegality and far too many questions as to why homeowners were being foreclosed upon to just blindly continue, so he began pursuing criminal charges against the banks.

Initially, homeowners at risk of foreclosure and activist groups representing them were wary that President Obama was going to neutralize Schneiderman by appointing him to the state/federal task force on securitization and origination issues, but thankfully, Schneiderman and the California Attorney General Kamela Harris agreed that the offered settlement was inadequate.

In exchange [for the $25 billion settlement], attorneys general would agree to release the banks from further action related to the improper servicing of loans as well as claims against originating mortgages. Several attorneys general, including New York's Eric Schneiderman and California's Harris, have voiced concerns that those releases are overly broad and would preclude them from carrying out ongoing investigations.

Prospects for serious homeowner relief are looking good and it appears that that ol' quaint “Rule of Law” just might prevail in the end, not because of any action at the Federal level, but because the state attorneys general have been doing their jobs and looking out for citizens and homeowners.

Update:

Well, the settlement is complete and the Attorneys General failed American citizens by agreeing to a truly horrible deal.

As former Special Assistant U.S. Attorney Cynthia Kouril said on FDL this morning, “The court system will be permanently corrupted by forged and perjurious documents…This settlement is an incredible breach of the social contract between the government and the governed.”