US To Settle Fraudclosure For $25 Billion Even As It Channels Fake Tough Guy In Meaningless Lawsuit Against Very Same Banks

Tyler Durden's picture

Remember robosigning and the whole fraudclosure scandal? In a few days you can forget it. Because in America, the cost of contractual rights was just announced, and it is $25 billion: this is the amount of money that banks will pay to settle the fact that for years mortgages were issued and re-issued without proper title and liens on the underlying paper, courtesy of Linda Green et al. Why is this happening? Because staunch hold outs for equitable justice (at least until this point), the AGs of NY and California folded like cheap lawn chairs (we can't wait to find what corner office of Bank of America they end up in), but not before the one and only intervened. From the WSJ: "The Obama administration made a full-court press over the past four days to secure the support of key state attorneys general, including those from Florida, California and New York." Nothing like a little presidential persuasion to help one with overcoming one's conscience. Because in America the push to abrogate the very foundation of contractual agreements comes from the very top. But wait, there's more - just to wash its hands of the guilt associated with this settlement which shows once and for all that the Democratic administration panders as much if not more to the banking syndicate as any republican administration, as it announces one settlement with one hand, with the other the US will sue banks over the mortgage reps and warranties issue covered extensively here, in the most glaringly obtuse way to distract that it is gifting trillions worth of contingent liabilities right back to the banks, not to mention discarding the whole concept of justice. From the WSJ: "Federal securities regulators plan to warn several major banks that they intend to sue them over mortgage-related actions linked to the financial crisis, according to people familiar with the matter. The move would mark a stepped-up regulatory effort to hold Wall Street accountable for its sale of bonds linked to subprime mortgages in 2007 and 2008. At issue is whether the banks misrepresented the poor quality of loan pools they bundled and sold to investors, the people said." Wait, let us guess -that particular lawsuit will end up in a... settlement? Ding ding ding. We have a winner. All today's news succeed in doing is finally wrapping up any and all legal loose ends, so that banks can finally wrap all outstanding litigation overhangs at pennies on the dollar. And if at the end of the day, they find themselves cash strapped, why the US will simply loan them more cash of course.

First, here is the WSJ, on the banks that will benefit from the fraudclosure settlement:

Government officials are on the verge of an agreement worth as much as $25 billion with five major banks, capping a yearlong push to settle federal and state probes of alleged foreclosure abuses by lenders.

 

The deal would represent the largest government-industry settlement since a multistate deal with the tobacco industry in 1998.

 

The agreement covers five banks: Ally Financial Inc., Bank of America Corp., Citigroup Inc., J.P. Morgan Chase & Co., and Wells Fargo & Co. Together, the five handle payments on 55% of all outstanding home loans, or around 27 million mortgages, according to Inside Mortgage Finance.

These are the banks benefitting from Uncle Sam's decision to finally unclog the foreclosure pathway, as banks will no longer have to prove in court they are in fact the title owners.

But just in case popular outrage at this act is a little much, at the same time banks sued over fabricating Reps and Warranties will be: "Ally Financial Inc., Bank of America Corp., Citigroup Inc., Deutsche Bank AG and Goldman Sachs Group Inc." What an odd coincidence: gift with one hand, and take away with the other from virtually all the same banks.

Only it is not really taking away: it is merely putting the wheels in motion that will ultimately result in the same type of settlement that will make a mockery of the legal process in the US, and expose all the state Attorneys General as banker puppets, doing the bidding of the highest bidder... and of Obama of course.

Some more, on the "gifting"

The planned pact would involve around $5 billion in cash penalties, payable to borrowers, states and the federal government. That includes $1.5 billion in cash payments to borrowers who went through foreclosure between September 2008 and December 2011. Borrowers could receive $1,500 to $2,000 each, with the actual amount paid depending on the number of borrowers filing a claim.

 

The agreement is expected to call on the banks to provide $20 billion in other aid—by cutting loan balances for tens of thousands of homeowners and by refinancing thousands of borrowers who are current on their loans but owe more than their homes are worth.

 

Officials say the deal will help provide immediate benefits to around one million homeowners, while raising accountability for banks that work with borrowers facing foreclosure. The foreclosure process has been snarled since late 2010, after allegations that banks had serially submitted bogus mortgage documents when attempting to repossess homes from delinquent borrowers.

Why the push now?

The bank payments would unlock a large new source of housing funding at a time when Congress doesn't appear likely to approve new spending measures to tackle lingering problems facing housing markets, such as a refinance program that President Obama unveiled last week.

30 pieces of silver? Or a corner office.

The three key states overcame misgivings about the plan in recent days, people familiar with the situation said. The inclusion of California is especially important: People familiar with the discussions say the banks would have been willing to pay just $19 billion without the participation of the nation's most-populous state.

 

The office of California Attorney General Kamala Harris declined to comment. A spokeswoman for Florida Attorney General Pam Bondi said that "while Attorney General Bondi has not yet joined the settlement, she is hopeful that a resolution will be reached soon."

The beneficiaries:

"It is frankly a headline victory for both banks and attorneys general with a modest impact on the housing market," said Joshua Rosner, managing director of investment firm Graham Fisher & Co.

 

"It's not new money. It's all soft dollars to the banks," said Paul Miller, a bank analyst at FBR Capital Markets.

And of course, the president, who ends up buying a few cheap votes for $2000 a pop:

Borrowers
could receive $1,500 to $2,000 each, with the actual amount paid
depending on the number of borrowers filing a claim
.

This is also the cost per individual to rescind in perpetuity any actual claims about one's mortgage paperwork. Will Americans go for it? You betcha.

As for the so-called punishment:

In a meeting with reporters last month, Robert Khuzami, the SEC's enforcement chief, said the agency's mortgage-bond investigation was looking for evidence that firms "failed to disclose important information when selling these securities."

 

Mr. Khuzami declined further comment on the investigation.

 

The planned regulatory actions come at a critical juncture. The SEC, Justice Department and state prosecutors are pushing to complete a number of financial-crisis cases by the end of this year, partly to avoid having enforcement action curbed by statutes of limitations, the people said.

In reality all this action will do is provide a benefit for private plaintiffs against banks like Bank of America, such as MBIA, whose case that banks have misrepresented terms of sold securities, will be strengthened. The ultimate cost, however to banks, will be miniscule compared to the fact that the foreclosure pathway will again be unclogged, and the banks are allowed to deficiency mark houses sold from REO, and use fungible excess reserves to plug the difference.

All in all, just a day's work for the administration as it does everything in its power to push the housing market higher at all costs, and further and further away from equilibrium pricing, which is what should be for a true and normal price appreciation to occur... something which will never happen of course as it would take far longer than the 4 years allotted to the president. If the process entails bending the law beyond recognition, so be it.