Sherrod Brown: Banks Shouldn’t Be Able to Pay Foreclosure Fraud Settlement With Investor Money

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Sherrod Brown: Banks Shouldn’t Be Able to Pay Foreclosure Fraud Settlement With Investor Money

FireDogLake – I brought up one of my chief problems with the possible foreclosure fraud settlement, the fact that AGs have already tried a settlement that mandated banks to deliver loan modifications to borrowers, and they flat-out didn’t do it. But Sen. Sherrod Brown offers up another problem. It turns out that, under the settlement, the banks could be allowed to pay out penalties using mortgage capital — basically the assets of investors, not anything that would harm the banks themselves. I wrote about this a couple weeks ago:

To be clear, a substantial number of investors would support principal reductions. They’ve come out and said so. They often end up in a better place with them than with foreclosure sales. But they would not have any say in the matter, according to this proposal, and the banks would get off scot-free for their fraudulent activities. The losses in the system would incur to the homeowners and the investors […] not only is the $19-$25 billion figure inadequate to deal with the massive foreclosure crisis or the extent of the fraud perpetrated, but banks would have a way to wriggle out of some of the charges.

It’s good to see Brown pick up on this in his letter to the lead negotiators on the settlement, which I’ve put in full below. In addition to stating that the sum total for the settlement is inadequate, Brown criticizes this creative accounting where the banks wouldn’t even pay the penalty.

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