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Searching for teeth to police a $25 billion mortgage abuse deal

Bank of America will have to pay nearly half of Thursday's $25 billion settlement agreed to by five big mortgage lenders. So how did BofA investors react?

They celebrated.

The bank's stock price rose just under 1 percent as investors noted that BofA avoided more draconian penalties after years of "robo-signing" and other deceptive tactics used to foreclose on millions of struggling homeowners.

The government's tradition of delivering a wrist slap and legal amnesty to misbehaving Corporate America remains alive and well in a deal set by the Justice Department and 49 state attorneys general.

Given the size of the five behemoth banks in this settlement, an average of $5 billion apiece is not a bad price to pay in exchange for immunity from civil claims for their mortgage-servicing sins.

Now these banks are protected against federal or state investigations — with some exceptions. A few investigations in the works against some of these big lenders will continue. Criminal investigations may also proceed. Prosecutors and regulators say they can still investigate who was behind the packaging of all those risky mortgages into securities that were sold to investors and later soured.

They better hurry, given the 5-year statute of limitations under securities laws.

Individuals are still free to sue these banks for their mortgage hanky-panky. That sounds good. It just seems unlikely many homeowners about to lose their homes will have the resources or the will to fight giant banks in court.

On paper, Thursday's agreement offers hope that homeowners still fighting to hold on to their houses may find some relief — or at least less insane bureaucracy — when dealing with lenders threatening foreclosure. But the deal also gives lenders three years to meet their obligations. That's an eternity for homeowners on the financial edge.

In recent years, the Tampa Bay Times has run story after story about homeowners deceived by bank attorneys from "foreclosure mills" bearing false documents in court; hounded in error by banks for late payments; ruined by paperwork lost by banks; confounded when their calls to banks were ignored or were returned but with conflicting answers each time.

A lack-of-accountability culture has emerged in some banks during this housing bubble that makes me worry. Will this settlement have teeth? Banks may promise to deliver on agreements made with the fed and states. I'm not sure some banks will do so. Others may try but may not even be capable of doing the right thing.

Joseph A. Smith Jr., an independent monitor and former North Carolina bank commissioner, will ensure compliance with the agreement.

"This monitored agreement holds the banks accountable," says Iowa Attorney General Tom Miller, who helped lead a 16-month nationwide investigation and settlement negotiations. "It provides badly needed relief to homeowners, and it transforms the mortgage servicing industry so now homeowners will be protected and treated fairly."

But remember: laws already existed that should have kept mortgage lenders on the straight and narrow. But they were not enforced and regulators never paid proper attention in the first place.

So what will be different this time?

Contact Robert Trigaux at

Searching for teeth to police a $25 billion mortgage abuse deal 02/09/12 [Last modified: Thursday, February 9, 2012 10:15pm]
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