Wall Street knew all of the mortgages were bad when they created or bought and sold them. Furthermore, they knew the warranties of quality they made regarding the caliber of the loans, whether to the certificate purchasers of the Residential Mortgage Backed Securities (“RMBS”) pools or the Government Sponsored Entities (“GSE”), were meaningless when they made them. It did not take hindsight to determine that those pools should not have been rated “AAA.”
Fannie Mae and Freddie Mac knew that the related documentation and the serving records were problematic for over a decade. The Federal Government has also known of the problems as evidenced by consent orders signed over a year ago by 14 of the major servicers. They promised then to do what should have been done all along: abide by laws and sound business practices.
Congress knows. The Senators know. The Attorneys General are aware. Countless committees, reports, investigations and press releases cite the blasphemous practices and unconscionable conduct of the industries related to real estate and its financing. Each have blustered “something must be done,” “what an outrage,” “vote for me, I will change all of this.”
Borrowers also knew it was too good to be true. Even if they did not have to produce documents to support stated income on mortgage applications, they knew that the applications were often falsified by originators who would never have any “skin in the game” of the debt roulette they were playing.
Is there anyone left who can claim ignorance that our mortgage market from start to foreclosure is rife with fraud, felons, misfits and idiots? Ironically, everyone claims it is someone else’s fault and that some other party should suffer the finger-pointing and scaffold. Poppykosh!
This dreadlock of mortgage morass, main street malaise and political uselessness has been twisting up for decades. The notion that it can be undone with the stroke of a pen is just that, a notion. You cannot be fit without discipline. You cannot cure lethargy without energy and you cannot fix systemic corruption and the real estate market with the Multi-State Settlement.
The Multi-State Settlement (“MSS”) involves every state, save and except Oklahoma. The MSS was entered into by the participating states and the following five major lenders (“Banks”):
- Bank of America $11.82 Billion (who holds the Countrywide loans that were not sold);
- Wells Fargo $5.35 Billion;
- Ally Financial $310 Million (formerly GMAC);
- JP Morgan Chase $5.29 Billion; and
- CitiCorp $2.2 Billion.
However, the Banks are not the only beneficiaries of the MSS for there is a release that includes their subsidiaries, affiliates and related entities, regardless of whether the subsidiaries to these companies are past, present or (presumably) acquired in the future. The net is cast quite far and wide in terms of Bank releases. The activities covered are similarly endless. However, they are listed as the acts or failures that relate to origination, servicing and foreclosure; the entire mortgage process.
Who, besides Banks and offending entities, were eager to see the settlement executed? None other than the Department of Justice (whom we pay to peruse and convict criminals, not settle with them); the Federal Reserve Board; the Conference of State Bank Supervisors; the Federal Housing Finance Authority (Freddie and Fannie Regulator); and the HUD. Many of these players have filed, pursued or exacted their own settlements with the Banks.
It is also interesting to note which states’ Attorneys General and federal actors were involved in the committee that put the proposed settlement together. It shall be interesting as well to watch these individuals get federal or other coveted appointments in the future.
- Pam Bondi, Florida Attorney General
- Tom Miller, Iowa Attorney General
- Eric Holder, U.S. Attorney General
- Sean Donovan, U.S. Secretary of Housing & Urban Development
- Lisa Madigan, Illinois Attorney General
It will also be these “civic-minded” individuals that lead the MSS complaint/compliance committee. You should be asking yourself now whether these individuals are the best suited for the continued oversight and enforcement of this program as they were the very soft-heeled ones to come up with it.
Despite being cash-strapped and eager to receive an infusion of capital to cover budget shortfalls (like many other states in the Union) the following states were hold-out states, true hold-out states. They actually worked out a more advantageous deal for their constituents.
- New York
- Oklahoma (never signed on to MSS, but took the hard money and not the opportunity for write-downs).
The states’ Attorneys General were forced to choke down the MSS much like a goose making pate for bankers. Thankfully, Nevada managed to secure a better settlement than most, and so we should have, as we are the hardest hit state.