Report: Banks Don’t Suffer in Settlements Meant to Punish

Although virtually no one involved in the Wall Street wrongdoing that led our nation toward a Great Recession has ever set foot inside a jail cell, there are those who point instead to the numerous, multi-billion settlement offers government prosecutors negotiated with banks as a form of penance.
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Supporters of this type of “justice” point to the huge numbers and assert we have “hit the banks where it hurts” – the wallet.

But the truth is far more nuanced, and in fact, there is substantial evidence those settlement agreements were not just mere dust-ups for the banks – they were actually profitable.

Our Miami foreclosure attorneys note a recent article in Salon.com details an in-depth investigation of the so-called “Pick-a-Pay” loan program. This type of toxic mortgage program was prevalent throughout the housing market boom.

It worked like this: The loans offered a number of payment options initially. Borrowers could choose from a 15- or 30-year fixed rate loan, a minimum payment with negative amortization (increasingly monthly balance) or an interest-only payment option. The problem was that when most borrowers picked the least-expensive option, rarely were they told what would occur when the pay option expired. Most often, the mortgage bill would shoot sky-high. They wouldn’t be able to keep pace and, almost always, they defaulted.

They were called “loans,” but in reality, they were ticking time bombs. In the five years leading up to the housing bubble burst, nearly 500,000 people signed up for these “loans” under false pretenses from the banks.

Homeowners complained to consumer regulators when their payments went through the roof. Law enforcement began investigating. Wachovia was the biggest purveyor of these “loans,” though it was later purchased by Wells Fargo. Because borrowers were never told about the consequences – and the fact these loans were inherently created to fail – Wells Fargo was liable for the fraud.

So in 2010, the bank struck a deal with nine states (including Florida). Each would end their criminal investigations, in exchange for tens of millions of dollars in cash to those states, which was to go to homeowners who had lost their homes. Those individuals would still retain the right to sue.

However, a short time later, a class action litigation against the company over this same racket was settled for $75 million. Minus attorney fees, it was distributed among 500,000, which meant each person affected got a check for $180. They were also entitled to loan modifications, etc. (which they already had under the previous deals with the nine states).

But here was the catch: By cashing that $180 check, victims of this scam forfeited their right to sue. The bank asserted this “waiver” also included the right to defend themselves in foreclosure. So when the bank started foreclosing on these properties by the thousands, these homeowners had no legal recourse.

Although there is denial the class action settlement resulted in homeowners losing the right to defend themselves in foreclosure, the bank has already won several cases by arguing this theory. Essentially, the financial giant has been able to steal for profit – and call it penance.

As if that wasn’t bad enough, the bank hasn’t even complied with minimal requirements set forth under the settlement. For example, the company was required to offer loan modifications to every qualified borrower who had been duped by Pick-a-Pay. The settlement calls for automatic receipt of benefits if borrowers qualify. However, the bank has required these borrowers to affirmatively apply for modifications first.

So two years into that settlement, the bank granted less than 1,750 loan modifications out of a potential 500,000. It denied nearly 65,000 modification applications. Further investigation revealed the bank was engaged in a series of practices that were designed to deny loan modifications.

The bank was then sued for non-compliance, and the judge finally ruled the justifications for the bank’s actions were “unreliable” and “misleading.” However, the judge flat-out said the court was not able to devote more time to the case.

The attorneys general in each of the nine states where settlement offers were made have been made aware of these findings, but so far, none have yet to re-open their investigations and hold the bank truly accountable.

There are lot of things deeply wrong with this situation. There are class action lawyers who took a huge piece of the pie without ensuring property owner rights would be thoroughly protected. There are state attorney generals who are essentially doing nothing to ensure the settlements they reached are valid and working. And then there is the bank, finding every possible loophole in which to exploit wronged homeowners.

In looking at the bigger picture, we find “settlement justice” isn’t really justice at all.

If you’re battling foreclosure in Miami or the surrounding areas contact Bruce Jacobs & Associates for a confidential appointment to discuss your rights. Call (305) 358-7991. Also, don’t miss Miami Foreclosure Attorney Bruce Jacobs on 880AM/the Biz, every Wednesday from 5 p.m. to 6 p.m. on “Debt Warriors with Bruce Jacobs,” discussing foreclosure topics that matter to YOU.

Additional Resources:
“We hope they were duped”: How prosecutors gave banks the best “penalty” ever, Oct. 14, 2014, By David Dayen, Salon.com

More Blog Entries:
“Too Big to Jail”: Wall Street Accountability Promises Fall Flat, Oct. 25, 2014, Miami Foreclosure Defense Lawyer Blog