Bank Mortgage Settlement Scam Even Worse, Crediting Zombie Valuations

Citizen Wealth Financial Justice Foreclosure

New Orleans   Yesterday a brief look at the new National Mortgage Settlement (NMS) and the results of the Independent Foreclosure Review (IFR) indicated that the latest reports, just like the earlier reports, indicate that the Obama Administration continues to get snookered at every brush with the big banks and Wall Street as it continues to try and pretend to deal with foreclosures with whitewash rather than real reform.  In exchanging comments with Dan Petegorsky with the Campaign for a Fair Settlement about his quotes in the New York Times and the Wall Street Journal, he made it abundantly clear that the new settlements are even worse than his moderate, scolding quotes.

The new foreclosure terms continue to bind the Administration’s co-dependence to the banks by facilitating and exacerbating their zombie status.  In the post bailout period, banks often look alive and health only by protecting the false and outdated evaluation of their mortgage “assets” by booking them at original loan values, rather than actual market values.  The fight for years in all of the campaigns around the banks and their foreclosure machinery has been to move the system away from the now established voluntary noncompliance on any so-called “relief” program, and finally get the banks to write down the principal balances to real, current market values, so that the loans are not only right-sized and brought to street values, but made affordable, allowing literally millions to stay in their houses.

Petegorsky made it clear to me exactly how bad these new terms are, not for the banks of course, but for the homeowners still trying to cling to their last hopes of holding onto their houses:

“I was actually talking not about the original IFR deal, but the “new” amended version – which may be as bad or worse. It’s certainly far worse than the NMS deal: there’s no requirement that they have to get the bulk of their relief credits via principal reductions, and (and this is actually true, even though I know it’s literally incredible) – they get credit not for $ amount they write down on the loans, but for the $ amount of the unpaid principal balance on those loans. I kid you not.

What this means is that the billion dollar press release terms that HUD and others are touting, are allowing the banks to continue to be stars in the real life “walking dead” drama, rather than reducing and forgiving principal and bringing the loans from deep under water closer to shore so the homeowners don’t drown, and therefore lowering the payments so that homeowners can stay in their homes.

Petegrosky went further to point out:

…”debt relief” it was giving people — using as their measure of that relief not what they’d be be credited by the monitor, but the hyper-inflated bank numbers – in which the lion’s share of the “relief” was short sales, 2nd lien mods, refis, etc.

Banks like HSBC were admitting in negotiating sessions as early as late 2007 that they would have to simply write off all 2nd mortgage liens at the point they had more of these 2nds on their books than virtually any other big bank.  Now they – and all of the rest of the zombie banks – are getting “relief” credit for writing off 2nds even without modifying the primary loan, which creates the increasingly well reported situations where a homeowner gets “relief” and still loses their house to foreclosure, because the bank essentially just paid itself back out one of its pockets, claiming homeowner relief, and still ripped off the homeowner and took the house.

HUD, the OCC, and the rest of the gang need to stop auditing for their starring roles in this Walking Dead drama, and finally get real and start slapping back some zombies and saving some real people in real homes in real cities around the country.