As discussed previously in this blog space, it appears that the investment and commercial banks most responsible for the 2008 mortgage crisis, are close to securing a big win at the bargaining table. Even though an agreement between the banks and the government has not yet been announced, all signs point to disappointment for distressed homeowners and those who hoped that Wall Street banks would be held accountable for their reckless behavior in the run-up to the foreclosure crisis. On its face, the currently under-discussion twenty-five billion dollar settlement seems like it could be a stiff penalty; however, as Gretchen Morgenson of The New York Times reports, in actuality, if this deal is agreed upon, big banks will only be required to pay five billion dollars in cash - and the rest in credits - divided amongst a dozen banks. Not much accountability or “heavy burden” there.
This cash from the proposed settlement would be split in the following way: $750 million to the federal government, $90 million to state bank regulators, and $60 million each to the roughly forty-five participating states, and the remainder of the $25 billion would be part of loan modifications, consisting of credits to banks for reducing the principal owed on mortgages that they own or service for private investors. Nevertheless, if past settlements and loan modifications are any indication, borrowers will not be seeing much relief. For this reason, the Attorney General's from New York, Delaware, and California have withdrawn from participation in these settlement talks.