Inside Financial Services

$300 Each To Defaulted Borrowers? What For?

The payouts on the robo-signing settlement make no sense

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Here’s an outrageous number for you: of the 4.3 million or so foreclosed-upon borrowers set to receive payments from the big banks as part of the 2011 foreclosure-abuse settlement with regulators, the number of people who were actually improperly foreclosed on-that is, they were current on their loans but the banks tried to take their houses anyway-comes to . . . . 53.

Out of 4.3 million. At first I wasn’t sure there were enough zeroes on my calculator to do the math, but that works out to be 0.0012% of affected borrowers. (I’d even trust a surgeon with that failure rate.) Another 1,023 were improper military foreclosures. Everybody else in the settlement defaulted on their loans just like the banks said, but are getting checks anyway, $300 each, because the banks committed some paperwork screwup or other, such as robo-signing, in the course of foreclosing.

This is monumentally, disgracefully unfair. To begin with, those 53 blameless borrowers deserve to be made 100% whole, with a penalty kicker added on, to compensate them for the ordeal they’ve had to go through. They did nothing wrong and lost their homes (or almost did) anyway. Instead, they’re just getting $125,000 each. The improper military foreclosures should be made 100% whole, too, with a penalty. They’re just getting $125,000 each, as well. Shameful.

Worse, why are the rest getting anything at all? They entered into a mortgage contract and, for whatever reason, failed to live up to their end of the deal. For this, they deserve to get paid? So what if the lender didn’t manage the paperwork properly; the foreclosed borrowers didn’t suffer any material harm as a result of it. You can argue if you want that the banks need to pay something for having screwed up their foreclosure processes so badly. Fine. They’ve already agreed to fork over $5.7 billion in foreclosure-prevention aid. Further, servicing and foreclosure regulation was heavily tightened by Dodd-Frank. So the banks have paid a big price for messing up.

Bank critics will say these defaulted borrowers are victims who deserve to be compensated. I prefer to think of them as “adults.” They knew exactly what they were doing when they signed on the dotted line. What’s more, a non-insignificant portion of the borrowers were the ones doing the victimizing. They didn’t call them liars’ loans for nothing, after all. Many borrowers lied about their incomes. They lied about their assets. They lied about their planned use of the properties. And they’re the ones getting checks? It’s nuts.

A lot of bad behaviors happened as the housing bubble inflated and even more after it popped. But random, misguided cash transfers at this point don’t undo any of the damage. They just make a crazy situation crazier. This settlement is idiotic.

What do you think? Let me know!

13 Responses to “$300 Each To Defaulted Borrowers? What For?”

  1. jsc173

    How is this different from anything the government pokes its nose in to “settle?” People hurt the least or not at all get overcompensated and those who are ruined get “half a loaf.” Of course, the loan brokers who made “liars” out of a lot of borrowers weren’t even parties to this suit, and they should have been.

    • Iubirea

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  2. SW Pilgrim

    What were attorney fees–Absolute and %??

  3. rivvir

    Ok, no disagreement from me here. Totally. On the other front, this may warm your heart a touch. Another handout. “Clinton Group, Inc. (“Clinton”), a stockholder of Stillwater Mining Company (SWC) that is seeking to replace the Board of Stillwater with independent professionals, today commented on the Company’s decision to rescind stock grants to the Company’s Chief Executive Officer, Frank McAllister. On Mr. McAllister’s watch, Stillwater stock has declined by 66%.
    A stockholder had sued each of the Board members personally claiming they had repeatedly approved grants of restricted stock to Mr. McAllister in violation of the Company’s 2004 Equity Incentive Plan. This morning, the Board announced it was rescinding three separate restricted stock grants (from 2009, 2010 and 2012) to Mr. McAllister.
    “It is truly astonishing that the Stillwater Board of Directors is unable to oversee the Company in a manner consistent with the Company’s own corporate documents, such as its equity plan,” said Gregory P. Taxin, Managing Director of Clinton. “Until a stockholder sued the Board members personally, the directors were oblivious to the violation or perfectly content to allow Mr. McAllister to benefit improperly from excessive grants at the expense of investors.”

    • Ayoubmoviah

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  4. Greg

    Agree 100% Tom. How many of those getting checks are receiving an amount close to, or in excess of, what they’d made as a downpayment? Even $300 is $300 more than many of these borrowers put down. And $300 is on the low end…many are getting $500, $600, or $800. Those that filed BK will get between $3,750 and $62,500. Wonder how much of that money will be used to pay back creditors? Nada.

  5. DC

    Good work again Tom. More people need to hear this thoughtfulness.

    • Wiebe

      I was diagnosed in 2008 at 31 dnirug a physical for Airborne school, a month after a very long deployment to Afghanistan. I was at the time the most physically fit I have ever been in my life. I am still in the Army, because in 2009 it was determined that I was still fit for duty. It has been a real challenge for me, but I am thankful I had the military health system to lean on, instead of being on my own. I finally have an insulin pump and CGM, and that has completely changed my life.I recently became aware that there is a cycling team composed solely of Type-1 diabetics, and as I’ll be out of the Army soon it is my #1 priority to try to be on that team.Keep up the good work, Andy. We’re all in this together.

  6. Bob Smith

    Tom – Could not agree more, this settlement is idiotic. However, even more idiotic is the fee that Eugene Ludwig’s firm, Promonory Financial Group, is reported to have received for six-months work – $2 billion!

  7. Do you get paid to be a mouthpiece for the banks?

    What you call “some paperwork screwup or other” is probably more accurately called “running roughshod over decades of well-established real estate law.” You’re right that the majority of foreclosed borrowers didn’t hold up their end of the bargain, but that doesn’t give the banks/servicers the excuse to foreclose with frabricated paperwork. On a different topic, please give me a break with the predatory borrower nonsense. There is no such thing. Developing unsafe and unsound banking products while completely ignoring common sense risk management doesn’t make the banks the victims.

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