Settling for Nothing — Cash flow note buyer

The front page of this morning’s Wall St. Journal announced that “the $25 billion settlement with banks over alleged foreclosure abuses will provide financial relief to an estimated one million at-risk borrowers, raising new hopes for an economy still hurting from the mortgage bust.”  Uh … no, on most all of that statement.

There is one big positive from the agreement, which was negotiated over 16 months – banks will more aggressively pursue foreclosures, which will clear out the backlog of distressed homes.  Yes, this will be painful for a lot of families in the short term, but is absolutely essential longer term if housing is to ever stabilize and regain its mojo.

Another plus is that banks are not entirely off the hook with this settlement.  The banks won’t have to look over their shoulders for the attorneys general from the various states, but could face lawsuits related to securitization of loans and fair lending practices.

However, there is a long list of negatives resulting from the agreement.  Of the $25-26 billion, the banks only have to pay $5 billion in cash, with the rest going to principal reductions and refinancings.  This is merely a slap on the wrist for the five big banks who signed the agreement.  A few of the other problems are:

1. Former homeowners who lost their houses to fraudulent foreclosures will each receive $2000 or less.  That seems to me a small penalty for banks that violated fraud and forgery laws.
2. From what I have been able to gather, the enforcement and compliance aspects of the agreement are weak.
3. Few serious mortgage fraud investigations seem to be occurring, and the relationship between Wall St. and Washington D.C. is unchanged, which almost guarantees a repeat of some type of fraudulent activity in the future.
4. How many executives have you seen doing the perp walk?  I haven’t seen any, and know of no major figures who have gone to jail.  While the agreement does not specifically forbid pursuing bank execs personally in the future, it shows that the government wants to put all of their crimes behind us and move on.

This agreement only applied to five of the biggest offenders.  If the next nine largest servicers agree to the same conditions, the total amount could rise to $40-$45 billion – still just a drop in the bucket when U.S. homeowners have $750 billion in negative equity and there are six millions homes in varying levels of distress.

Overall, this agreement pushes us a little closer to the end of the housing crisis, though there is a lot of pain ahead.  Unfortunately, most of that pain will be inflicted upon taxpayers and investors rather than on those who committed the original crimes.

Alan Noblitt is a cash flow note buyer that buys mortgage notes in all 50 states.  He has been a successful cash flow note buyer since 2002.

6 thoughts on “Settling for Nothing — Cash flow note buyer

  • By Dazio -

    Fine article, but why are homeowners who participated in fraud allowed to benefit, I.e. financially at taxpayer expense. That is just WRONG.

    Yes there are a few examples of purchasers being defrauded into loans. However the vast majority were willing participants in fraudulent loans.

    Honor your commitments.

    Dazio

  • By Alan -

    Because this is the government, that is why. Why is someone who either was smarter or had the good fortune to buy ten years ago not getting paid while someone who bought at the peak receiving funds? Because it makes political sense even if it escapes common sense.

    You’re exactly right in your comment and I agree that we should all honor our commitments. Sadly, we appear to be in the minority with that opinion.

  • By Jeff Brown -

    …and where was the taxpayer paid government oversight over the last ten years leading up to the current fiscal nightmare. No rolling heads there, why in hell would we ever trust these brain-dead imbeciles again. These will be the same morons sleeping through the next Wall Street crafted crisis, which, trust me, is being plotted as I’m writing this. This murky, deal-making, slimy underworld of Corporate America and it’s ownership of the American political system has got to cease. Simple. I guess things just aren’t that bad yet. Accountability with REAL consequences might kick-start a new frontier.

  • By Alan -

    Agreed. Unfortunately, it is not just the slimy corporations (more specifically, the big banks), but also greedy unions and every other special interest group that wants something for nothing.

  • By Pat Rombach -

    THIS IS A JOKE… WHY HAS NO ONE BEEN THROWN IN JAIL!

    In the 1980’s they threw over 1,000 bankers in jail for fraud after the S&S crisis. Now banks commit fraud and the punishment is almost nothing compared to the crime. Not one banker is in jail. The banks that committed the fraud should be bankrupted period. Other honest banks should be allowed to prosper. This is what happens when 40% of the political contributions come from the banks. This is just like the tin pot dictatorships that the US used to laugh about. Now the American People / American Economy are controlled by the banks. The problem is that the average american does not understand this. Our political candidates do not even mention this except for Ron Paul. READ THE BOOK GREEDY BASTARDS BY DILLION RATTIGAN (FROM MSNBC) for all the details.

    Pat Rombach

  • By Alan -

    Right on all counts. I just started reading the Rattigan book over the weekend, and like it a lot so far.

    Alan

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