Peter Finch in Network, remember?

Well I’m glad that’s over.  What?  Didn’t you hear?  The banks are settling the foreclosure debacle for $25 billion… that’s billion with a ‘B.’  I guess that means it’s all behind us now.  The banks are going to pay for all those bad loans they made… the banks are going to pay; huh… by the way, just who are “the banks”?

Perhaps I’m being a bit facetious.  My wife might say even a little obnoxious, but let me explain…

This whole foreclosure settlement thing?  I just don’t get it.  The States and Federal Government have settled a potential civil lawsuit in which the banks are purportedly guilty of using shoddy foreclosure practices to take peoples’ homes that were delinquent on their mortgages.  The wronged parties here are the – who? Oh yeah, the delinquent homeowners who weren’t able to do what, modify their mortgage?  Fight back the lender?  Prolong the time they are allowed to stay in their home without paying?  Oh right, they were misled by the loan reps back in 2005-6 and got in over their heads blah, blah, blah… No one wants to see people lose their homes, but how is a $25B settlement going to do anything to do about that?  Here’s what I think: nobody’s going get that money, but somehow I suspect we’re all going to have to pay for it.

So what happens when The Banks have to shell out $25B?  Where does that money come from?  Perhaps it comes out of their reserves.  But wait, if it comes out of their reserves, they’ll have to replenish those reserves right?  So, they’ll need to charge higher rates to lend to homeowners and small businesses, while paying savers ever lower rates.  After all isn’t that how the banking industry makes their money – the spread between borrowing costs and lending income?  They will also have to lend less as they replenish their reserves, remember that whole “Stress Test” thing?  All this just makes it even harder to get a loan.  Oh great, that will mean even fewer transactions for guys like me.  So who benefits from this settlement?  You got me… the guy who lost his home maybe?  Or how about the one who lied on his loan app about his income maybe?

Look, I know it probably sounds callous, but enough is enough.  After all, who do you think is going to pay for the $25B anyway if not you and me?  The banks, right?  OK, who is that?  The stock holders?  The CEOs?  The whole thing is so Kafka-esque.  I’m feeling a bit like a cockroach on trial.  And who is distressed, how do we even define that?  I’m distressed because declining values have cut my commissions, and there are fewer transactions.  Heck after 5 years of recession, we’re all distressed.  Seen the cost of college lately?  I have 2 kids in college and tuition is going up and up; oil is $100 a barrel and oil companies’ profits are soaring!  In fact the oil companies made more exporting refined diesel than keeping it here, thus driving up the costs of all the goods I buy.  But of course we didn’t feel that because Corporate America cut wages and busted Unions, so the average American worker makes less, in order to keep the price of those goods down.  So terrific, the goods cost less at the store but we make less so we are all more distressed, and worse still, can’t qualify for a new mortgage, even if we still have good credit.  So how’s the $25B settlement going to help?

Presently, I am helping 3 clients try to modify their loans.  There’s no money in it for me of course, it’s all pro bono – I’ll get the short sale listing if I am unsuccessful I suppose.  Will the some of the $25B settlement go to these folks?  I hope so, but I doubt it – they haven’t been foreclosed on wrongly.  Sure, they are all either out of work, been out of work, or taken jobs at a far lower pay scale than they were earning 6 years ago when the bought or refinanced their homes to begin with, but they still have their homes, so I doubt they qualify for any part of the settlement.  Should the bank modify their loans?  Yes, but not because they ought to, but rather because it makes good business sense.

At this point you may think me bitter, and I suppose that’s a fair observation, but I’m really not.  Rather, I’m just disappointed in the “let’s sue the banks” thing.  Banks like any corporation need to make money, so the issue shouldn’t be how much we get them to pay out, but rather what can we do to give them incentive to help people in distress?  No jail time would be a good start.  Maybe the Government will figure out a way to take the money each bank is required to contribute to the settlement, make them apply it to the troubled borrowers who still have homes.  I read that’s what it’s supposed to be used for; that the money will be used to help to get the banks to write off some of the debt that’s keeping a foot on the throat of underwater homeowners… we’ll see…  Personally, I feel the U.S. Attorney General should be focusing not on settlement, but rather on the criminal angle and put some of these high level corporate folks away for a while, like they recently did with Wall Street insider traders.  The rewards of profitability are just that, profits, the penalty for cheating can’t be simply payouts, that’s too easy, rather prison time, because that’s what corporate America really fears not paying a penalty.

So, $25B… did you want that in a check?  Hold on, I’ll get my checkbook.