Homeowners Thrown Under The Bus – What’s In Your Wallet?

Team Obama heralds today’s settlement among 5 banks, the feds and 49 states. $25 billion “to help hard working Americans”. Were that it so.

Under terms of the settlement, the five lenders won’t have to pay out the bulk of the $25 billion. Some $17 billion represents credits applied toward targets lenders have to modify some of the loans on their books. Some of those modifications would have happened anyway. Based on a complex formula, bankers will earn credits on a sliding scale depending on the type of modification. The least costly refinancing methods might earn a lender as little as a nickel on a dollar; the costliest would generate a dollar-for-dollar credit.

And so on. Our old friendly acquaintance Liz Warren observes she “hopes [the settlement] is the beginning, not the end” of efforts to hold banks accountable for their destructive duplicities. Fake sincerity is equally grating, whether from Obama’s toothy visage or Mitt’s coiffed animatronics.

The settlement marks another kind of accounting transfer labeled as a ‘payment’. Mostly, money is merely moved from account to another. In that scheme of faux payments, California wins big. “$18 billion” in “payments” out of the “$25 billion paid”.

The real beneficiaries — as we know — are in fact the banks, not American citizens. A few specific Americans will benefit from the settlement’s narrow targeting. But the banks pay out almost nothing.

The State AGs posture saying the real victory is that banks will run the foreclosure mills with less blatant disdain for maintaining mere pretenses. Appearances must be maintained – that’s our victory. Americans who were evicted by bank fraud within a specific window – Jan 1, 2008-Dec. 2011 – will receive. . . $1,500. But hey, banking executives obtain some protection for liability. Turn that frown upside down!

What Barry announced is actually what Mitt Romney has been promising – expedite foreclosures, clear them out, fix ‘em up and sell/rent. Realtors are on board with that. The liquid class are too, expanding holdings, buying at the bottom. Banks can now begin clearing overhang, improve their balance sheets. All needed, we are told, to improve the economy and get lending going again.

Except, of course, banks have essentially free money (ours, in almost zero interest accounts) and from the fed. And lend it out at obscene multiples – forget about gouging us using our money with debit card fees. Moreover, the banks’ current balance sheets are almost wholly separate from corporate America’s refusal to invest or spend over $2 trillion in idle cash. So let’s stop lying to ourselves.

Americans are trapped in upside down mortgages to the tune of $750 billion. This settlement will not apply to more than 5% of that market malfunction. And contrary to what politicians say, the very (slight) incentives in the Settlement further encourage banks not to help those remaining trapped underwater, even (especially) if completely current.

Those Americans and others are left behind, drowned out by photo ops and press conferences. Their distress and its resolution will have far greater impact on (a) returning economic growth; (b) a vibrant (as opposed to moribund functional) real estate market; and (c) ultimately the banks’ own well being. How inconvenient of them.

No one here likely would argue that a functioning real estate market responding to true market signals isn’t essential for the economy. Healthy (but not predatory) banking still eludes us, too.

Because that, ladies and gentlemen, is just what went down – millions of Americans thrown under the bus for optics and the possibility — maybe — of helping bank balance sheets.