Big Banks Expecting to Pay $20 Billion Each for Mortgage Fraud
The figure begs the question: Is that nearly enough?
The nation's five biggest mortgage lenders are anticipating paying at least $20 billion in order to make nice on allegations of foreclosure abuse. Based on recent conversations he's been leading with the banks, associate U.S. Attorney General Tom Perrelli, says that Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial are all realizing that the $5 billion figure they all floated in May would not be enough to end the probe. According to Shahien Nasiripour at The Huffington Post, Perrelli explained the situation to a bipartisan group of state officials based on recent conversations with each of the firms, and more than anything, the banks--as well as top administration officials like Tim Geithner--are looking for a quick resolution.
The $20 billion figure actually matches what The Wall Street Journal originally reported that federal had proposed last month when talks of a settlement began. The investigation itself started last month after widespread reports that the top mortgage firms illegally seized homes and possibly lied to local judges in expediting the foreclosure process. The money would go into a fund that would be used to pay back borrowers that the banks had scammed during the mortgage crisis and help those kicked out of their homes to find a new place to live. As The Journal reported in May, the settlement deal must satisfy not only the Department of Justice officials overseeing the conversations but also state attorneys general, the Department of Housing and Urban Development as well as the Federal Trade Commission.
Nasiripour says that despite the federal officials attempts to move quickly, some state officials are pushing for a deeper investigation. A set of confidential federal audits, he reported last month, show that these same firms may have also defrauded taxpayers by illegally foreclosing on homes purchased with government-backed loans. This in addition to all of the other shady practices that have not yet been revealed at a federal level:
New York’s top law enforcer, Eric Schneiderman, wants to conduct a complete investigation into all facets of mortgage banking, from fraudulent lending to defective securitization practices to faulty foreclosure documents and illegal home seizures. Delaware recently sent Mortgage Electronic Registration Systems Inc., which runs an electronic registry of mortgages, a subpoena demanding answers to 75 questions.
Other states are combing through court filings and pulling out files infected by so-called "robo-signing" and potentially-fraudulent claims made by banks, while some are probing the role played by a unit of Lender Processing Services, a firm used by the biggest mortgage companies in foreclosure proceedings.
Meanwhile, the full scale of the damage caused by the mortgage crisis is yet to be determined. Housing prices continue to plummet and more than a quarter of homeowners owe more on their mortgage than their home is worth. With an estimated two million homes in foreclosure the proposed fund could certainly help a lot of people. And with profits bouncing back the banks could certainly afford to pay. JPMorgan Chase and Wells Fargo, for example, posted 67 percent and 48 percent profit increase in the first quarter of this year.