On Thursday of last week, lenders involved in negotiations with the Obama administration to reach a settlement that would hopefully end the robo-signer controversy and begin to restore faith in the lending industry received the administration’s proposal for resolving the robo-signer fiasco. Rumors have swirled about the contents of this proposal, with critics claiming that the lenders are going to have to pay too much to people who were wrongfully foreclosed and lenders insisting that mandatory principal reductions would ultimately just lead to fraud and closed banks. However, pretty much everyone expected that there would be some solid number for a monetary penalty that banks would have to pay for their misconduct. Oddly enough, there is nothing like that in this initial document[1].
This may be a response to allegations – apparently reasonably accurate – by the comptroller of the currency, John Walsh, that most of the foreclosures conducted by banks were legal – even if not adequately documented or verified – and that only “a small number of foreclosure sales should not have proceeded” of the myriad processes now in question due to the robo-signer fiasco. However, the decision to make the settlement proposal largely a “code of conduct” for banks moving forward has many people, including a “Capitol Hill staffer” who spoke to the Huffington Post on condition of anonymity, suspicious that “the settlement was conceived as a benefit for financial markets, giving investors and banks certainty about their total liability from wrongful foreclosure rather than thousands of individual court cases”[2]. If this is the case, then you would think that lenders would be pleased to have ultimately gotten a settlement in hand.
However, lenders complain that the fees and regulations in their proposed code of conduct are nothing more than a “naked shakedown.” Futhermore, they believe that some proposed mandatory principal reduction regulations do nothing more than open them up to fraud and, and lenders like Ally Financial admitted that “any of these potential actions could have a material adverse impact on us”[3]. It seems reasonable that lenders should pay for this vast moral and professional oversight, but unless we are ready to operate without the lending industry as we currently know it, then maybe the penalties cannot be as severe as many might consider “fair.” Do you think that this settlement does enough for the injured parties? Too much? How should the country’s lending industry be handled going forward?
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[1] http://www.dsnews.com/articles/banks-receive-proposal-that-could-make-write-downs-mandatory-2011-03-04
[2] http://www.huffingtonpost.com/2011/03/04/lawmakers-demand-big-mone_n_831693.html
[3] http://empowerednews.net/foreclosure-investigation-result-draws-closer-as-attorneys-general-draft-settlement/186364/
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