The federal government's response to the home mortgage crisis always has been an exercise in living down to one's lowest expectations.
The $25 billion settlement with five big banks over the foreclosure abuses that U.S. housing officials and 49 state attorneys general announced last month was supposed to be an exception. But with every passing day, the shortcomings of this deal appear to proliferate. That is, as far as we know, because the specific terms of the settlement are still not public, nearly one month after it was unveiled in Washington with the sort of fanfare formerly associated with the splashdown of a space capsule.
The latest explanation for the secrecy is that the parties are waiting until the settlement is filed with a federal court in Washington, which could happen this week or next. But the explanation only evades the question of why the deal wasn't filed in court before or simultaneously with the big dog-and-pony show, as is customary with high-profile legal settlements.
It's fair to say that there are positive aspects to the settlement. It creates some incentives for the five banks — Bank of America, Wells Fargo, JPMorgan Chase, Citigroup and Ally Financial — to be more aggressive in offering relief to strapped borrowers whose home values have fallen below their mortgage balances.
For each variety of mortgage relief, the banks will get a certain credit against their $20 billion target. For every dollar of balance reduction offered a homeowner who is up to 75 percent underwater, for example, they get a dollar credit; for principal forgiveness on delinquent home-equity lines, the credit ranges from 10 percent to 90 percent.
Yet some troubling aspects that emerged when the settlement was unveiled Feb. 9 look even worse a month later. One is how federal regulators are helping the banks meet the costs of the settlement. The Office of the Comptroller of the Currency, a major bank regulator, said on the day of the settlement announcement that it was giving the five banks in the deal a pass on $394 million in penalties it would otherwise have assessed them for shoddy, and shady, mortgage and foreclosure practices.
It turns out that two other federal regulators quietly took similar steps. The Federal Reserve Board rolled $766.5 million of penalties it assessed the banks for unsafe and unsound mortgage practices into the foreclosure settlement. And last week, the Treasury Department announced that it would pay Bank of America and JPMorgan Chase some $171 million in incentives it had withheld since June because of the banks' shortcomings in dealing with homeowners under the government's chronically underperforming Home Affordable Modification Program.
You can argue to your heart's content about whether these penalties were justified and whether the absolution was necessary to bring the banks to the table, but one fact is indisputable: If the banks had shown as much forbearance toward their struggling borrowers as these three agencies have shown toward the banks, the foreclosure settlement wouldn't have been necessary in the first place.