As the economy continues in recession (if one is honest in their assessment we ARE still in recession) and the residential housing markets remains in the toilet, everyone is suffering except for those who created the mess: reckless mortgage lenders and Wall Street racketeers who knowingly packaged questionable loans in what's called "securitizing" and sold them to investors. The end result is that investors got burned big time and that no one was accountable for handling foreclosures - and it seems at times even servicing the loans. Years into the mess, and lenders still are not being held to account and the utter mismanagement and incompetence of servicers and those allegedly in charge of loan modifications make the Three Stooges look like highly competent rocket scientists. I have clients who deserve loan modifications based on changed circumstances, etc., yet all they get is the run around and find themselves dealing with morons who lose paperwork over and over and over again. These irresponsible lenders were seeking a global settlement with the state attorney generals - which would have let them get off in an obscene way. Now, that effort seems to be unraveling as California has pulled out of the deal. Rather than letting the real villains off while prosecuting small bit players, the states need to go after the real culprits and send them to jail. The Los Angeles Times looks at California's decision not to let the lenders and Wall Street off easy. Here are some highlights:
A slew of state attorneys general banded together 11 months ago to try to extract a multibillion-dollar settlement from banks for the way they mishandled foreclosures. The prospects of a deal have been clouded, however, by dissension in the AGs' ranks. On Friday, California Atty. Gen. Kamala Harris became the latest to drop out, announcing that she would pursue her own investigation. Top prosecutors in half a dozen other states, including New York, Nevada and Massachusetts, have already pulled out of the multi-state talks, saying they were concerned that the group wasn't demanding enough from banks in exchange for settling the states' claims.
We're all for holding lenders and loan servicers accountable for the illegal shortcuts they've taken and misrepresentations they've made, and Harris' frustration with the slow pace of negotiations is understandable.
In addition to fairly compensating those who were directly harmed, the AGs' goal should be to make sure struggling borrowers are treated reasonably, rationally and efficiently — something that overwhelmed lenders have failed to do.
Even a borrower who has no chance of avoiding foreclosure has rights, and banks ignored them in their sloppy and corner-cutting responses to the skyrocketing number of defaults. There's also a good argument to be made that banks violated consumer protection laws by making promises they didn't keep about loan modifications for troubled borrowers.
That includes enabling more borrowers in hardship to write off some of their debt, making it easier for troubled borrowers to sell homes that are worth less than their mortgages, and ending the indefensible practice of lenders foreclosing on homes while the owners are negotiating with them for more affordable loans.
The truth is that the lenders don't give a damn about fair treatment of borrowers. And they don't give a damn about the ultimate cost to taxpayers who will end up paying the price as lenders are bailed out by HUD, FHA, VA and Fannie Mae and Freddie Mac. The lenders have been winning while everyone else gets screwed over. It's time for this to end.
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