Bad Math and Foreclosures are Twin Towers of Banking

zzbofaNew Orleans  I know you are sick about hearing about foreclosures.  I sure am!  This has all gone on so long and so painfully, and now even the so-called settlements and cleanup of the mess is extending the tragedy.

            What do we have now?   Bank of America makes an accounting error and the miscalculation adds $4 billion in assets that don’t exist, so, big whoops, there goes the stock buyback program, a whooping percentage of its stock price, and any discussion of improving the dividend.  You know how much their big brass at the top of the financial pyramid are paid?  Do this at home on your tax returns or loan applications, then plead that the rules were confusing and you didn’t get, it and you could be facing fraud charges, brothers and sisters.   I think we can agree that the strengths of big bankers may be sitting on their paychecks, but clearly it is well proven now that math is not one of their close friends.

            Now new government reports on the mess banks made in mismanaging the foreclosure modification program for their friends at the Treasury Department are once again proving what we already knew about banking math mayhem.  Remember the tragic problem where the Federal Reserve and the Office of the Comptroller found that overly burdensome and lengthy reviews by bank-hired consultants were costing hundreds of mega-millions and needlessly dragging out compensation for borrowers who had been victimized by banking errors, often forcing them into needless foreclosures, while the bank buddies ran up the bills.  Sure you do, even if you don’t want to admit it.

            Correctly figuring that this crony self-regulation was going to make the bill for finding the mistakes almost as high as the bill for correcting the mistakes, the regulators figured the preliminary error rate at 6.5% and made a deal with 15 banks for $10 billion to give some, and frankly too few, foreclosure victims a modicum of relief.   Well, now it turns out that an unnamed bank that had completed more reviews found an error rate of 24% compared to a look at borrowers’ files for 11 banks having done less.  Controversially, of the $10 billion only $3.9 billion was going to involve cash payments to 4.4 million victims, which was small potatoes for big pain anyway you look at it.

            What if real investigators had been doing the work, and getting it done quickly, rather than bank buddy consultants milking the process?  What if the rate was really closer to 24% than to 6.5%, which is to say 3.7 times higher?   Well, then, everything being equal, which we’re finding out in the US is never true anymore, the settlement should have been $37 billion and 4.4 million victims would have shared almost $14 and a half billion within the terms of the deal. 

            I know we’re not supposed to deal with math and banking in the same breath anymore, but your average foreclosure victim might have noticed the difference in one check that was $3295 dollars versus the one they got which was only $886 bucks.  None of which seems enough for losing your house, but one seems more like a rounding error than justice to me.  Either way, it’s time to stop believing any math coming from banks that has to do with foreclosures or anything other than the accuracy of their own paychecks and what they pay their buddies.

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