Hailed as a landmark agreement, President Obama announced in early February a $26 billion settlement with the five largest banks to provide homeowners “mortgage relief.”
A number of state attorney generals had filed lawsuits against banks for foreclosure abuse, as banks have faced sharper criticism for improper and outright fraudulent practices, even repossessing homes without any proof of owning the actual mortgages. But under this agreement most of these lawsuits will be dropped. That’s pretty good for the banks, since, according to financial analysis Yves Smith, the big five banks covered by this deal will only end up paying a total of about $5 billion in actual cash.
Over 11 million homeowners have negative equity, also referred to as being “underwater.” This means they owe more money than their house is worth mainly because of the drastic drop in home prices. The total negative home equity in the U.S. currently stands at staggering $717 billion. In fact, the five banks that are part of the deal own less than 8% of all mortgages, leaving the other 92% of the homeowners out to dry.
Yet, under this agreement, those that have been subject to these faulty practices will at most receive a $2,000 check. Apparently the price of fraud in this country is less two months pay at minimum wage!
Aside from the utter failure to provide meaningful relief for the worst housing crisis the U.S. has faced since the 1930s, the deal could actually make matters worse. Many foreclosure proceeding have been stalled due to allegations of fraudulent paperwork and foreclosure abuse. This settlement may actually break the logjam and lead to a new “wave of home seizures.” (bloomberg.com, Feb 9, 2012).