The $25.6 billion settlement on home foreclosures reached between five mega-banks — Ally/GMAC, Bank of America, Citibank, JPMorgan Chase and Wells Fargo — and 49 states, along with the federal government, is not an It’s a Wonderful Life triumph of “organized people over organized money.”
But neither is it just another one-sided swindle perpetrated by the “the banksters,” as the 1930’s “Hellhound of Wall Street” prosecutor Ferdinand Pecora called them. That’s the story suggested by respected progressive Wall Street observers Matt Taibbi of Rolling Stone and Pam Martens of Counterpunch.
Instead, the deal puts the foreclosure-fraud struggle on a new level, demanding continued struggle in the spirit and through strategies exemplified by the Occupy movement. It’s a partial setback for the banks, forcing them to cough up a sizable (but still inadequate) chunk of money while shamefully shielding them legally on some key issues. But at the same time, it creates a federal task force, headed by the aggressive New York Attorney General Eric Schneiderman, and more clear-cut options for victimized families and housing advocates to pursue.
Let’s begin with an overview of the foreclosure-fraud crisis as neatly summarized by Zach Carter:
Financial giants paid other firms to issue fraudulent loans, issued fraudulent loans themselves, packaged fraudulent loans into securities and sold them to investors, lied about their subprime mortgage holdings, invented new financial gimmicks to hide billions of dollars in debt, and even laundered hundreds of billions of dollars in drug money.
(For more depth, see the Pro Publica website, which has provided outstanding reporting and maintained an excellent compilation of materials on the mortgage-fraud crisis.)
The securitization of mortgages was intended to shield investors from risk by bundling thousands of mortgages together. But once they wanted to start foreclosing when the housing bubble burst, the banks discovered that they lacked the proper documentation proving ownership to kick families out of their homes. The resulting “robo-filing” scandal actually involved something far more sinister and downright criminal than rapid-fire handling of documents: the banks were concocting fraudulent mortgage documents and regularly engaging in perjury.
Meanwhile, the Obama administration’s programs aimed at helping vulnerable homeowners were premised on not contesting bankers’ power, and consequently had negligible effect, topped off by truly craven opposition to a moratorium on foreclosures just weeks before the 2010 midterm elections.
The scope of the devastating problem for swindled working families can hardly be overstated, as The New York Times noted:
About one in five Americans with mortgages are underwater, which means they owe more than their home is worth. Collectively, their negative equity is almost $700 billion. On average, these homeowners are underwater by $50,000 each…Four million Americans have been foreclosed upon since the beginning of 2007, and the huge overhang of abandoned homes has swamped many regions, like California, Florida and Arizona.
The $26 billion (possibly growing to as much as $39 billion) to be shelled out by the banks is actually a small penalty for the massive financial and psychological devastation they have inflicted on working families. Further, the deal precludes further legal action against the banks on “loan origination” issues. Pam Martens preicisely explains why this is a central weakness:
Because tens of thousands of consumers were victimized in a bait and switch racket, believing they were getting a fixed rate mortgage only to find out a few years down the road that they had an adjustable rate mortgage that reset and doubled or even tripled their monthly payment — making it impossible to stay in their home; an effective wealth stripping enterprise by Wall Street against decent, hardworking families across America.
Fully 61 percent of families persuaded to utilize subprime loans were eligible for normal mortgages, but were cynically steered into the sub-prime market, as Mother Jones documented. This little-reported reality demolished the Right’s racially-charged fable that the housing crisis was caused by the Community Reinvestment Act forcing banks to grant mortgages to people of color unqualified to handle mortgages.
The settlement exempts the banks from further legal actions on some critical issues, as the Times reports:
The settlement still shields them from state and federal civil lawsuits for most foreclosure abuses, including the wrongful denial of loan modifications, excessive late fees that enriched the banks but could make it impossible for borrowers to catch up on late payments, and conflicts of interest that led banks to favor foreclosures over modifications.
However, there are some crucial avenues of action for the victims of foreclosure and public officials which the settlement leaves open which merit attention from labor and progressives:
The banks are not off the hook for criminal prosecutions related to the mortgage mess or for private lawsuits. They are also not off the hook for wrongdoing in their aggressive pooling of mortgages into securities and other practices that inflated the bubble.
Thus, the banks remain vulnerable to legal actions on these issues, whether undertaken by individuals or conscientious attorney generals.
“I think that this will provide a great opportunity for individuals to pursue their own cases against the banks,” says attorney Larraine McNamara-McGraw, part of a Milwaukee-area law firm specializing in challenging foreclosures and other pro-consumer work. “We just need to educate people about how they have been ripped off and how they can file legal actions.” Citizens can also be mobilized to pressure foot-dragging state AGs to investigate and prosecute the banks.
Moreover, New York’s tenacious Attorney General Eric Schneiderman — who was personally responsible for narrowing the banks’ legal immunity – will be heading up a federal task force to investigate the banks on criminal isssues. Also playing a key role in reinforcing Schneiderman’s tough stance were the direct actions of groups like National People’s Action, whose feisty protests against the banks considerably improved the settlement over the last four months, according to one source active in exposing the wrongdoing of the financial industry.
In every state except Oklahoma (which reached its own settlement), public officials can be targeted to both properly allocate the funds allotted to each state and to vigorously pursue criminal complaints against the banks’ foreclosure practices.
In Wisconsin, for example, a battle has already broken out over the plans of Gov. Scott Walker and Attorney General J.B. van Hollen to siphon off $25 million of Wisconsin’s $140 million share to apply to the budget deficits created in part by Walker’s massive corporate tax cuts. Thus, Walker and Van Hollen intend to divert funding from families ripped off by the banks to cover a budget hole caused by favors granted to his corporate donors. Walker’s plan is brimming with hypocrisy, as Think Progress points out:
Milwaukee Mayor Tom Barrett (D) criticized Walker’s move, saying “not one dime [of the settlement] should be used to fund the unbalanced state budget.” Adding insult to injury, Walker has previously criticized using one-time settlement money to fill budget holes. The settlement money …was certainly not intended to paper over state budget problems, particularly in a state whose governor assured everybody up and down that busting his state’s public unions was the key to fiscal solvency.
AFL-CIO President Richard Trumka was on the mark when he called the settlement a ‘first step’ toward resolving the foreclosure crisis for working families:
We urge President Obama to provide the federal investigative task force with the resources necessary to address the $750 billion in negative home equity that is the result of illegal conduct by banks. The 99 percent demand a fair economy and a judicial system that holds the rich and powerful accountable for their illegal behavior.
But to hold the “banksters” accountable for their crimes, the AFL-CIO will need to commit far more “resources” of its own to local battles against foreclosures and the conduct of the financial industry, not just lobbying at the national level.
As I have argued before, the AFL-CIO is in a unique position to exert its leverage in the fight against unjust foreclosures in numerous factory towns. While workers may feel intimidated by the threat of corporate relocation at the bargaining table — as witnessed by the reluctant acceptance of multi-tier contract provisions by union locals confronted with the loss of their jobs — labor still has considerable power in the community.
In many industrial cities, there is a big overlap between the circle of union-affiliated residents and those threatened with foreclosure. The potential for collective action — whether filing hundreds of legal actions, pressuring the state attorney general to pursue the banks’ obvious illegal practices, or physically blocking evictions as occurred during the 1930s and renewed by direct-action Occupy activists — should be obvious.
While far from ideal, the foreclosure settlement opens the door to more encouraging local activism on foreclosures. But a coordinated campaign by the AFL-CIO would add fuel to the flames and ignite a prairie fire of protest for the victims of foreclosure fraud.