Big banks – a day late, a hundred thousand dollars short

Mortgage servicers have published an itemized list of the payments they will make to wronged borrowers as a result of a multi-billion dollar settlement reached earlier this year. Most borrowers will receive between $300 and $600, while a select few (about 1,000 out of 3 million) will receive the maximum payout of $125,000.

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More payola from the big banks

The servicers (comprised primarily by the big banks that service Frannie-owned loans) agreed to pay $3.6 billion to borrowers whose homes were improperly foreclosed on between 2009 and 2010. The settlement was reached in an effort to expedite  the arduous process of reviewing over 3 million complaints individually.

Rather than being determined by independent regulators, the banks determined who received each payout amount themselves. In part, this was accomplished by hiring consultants, who were paid upwards of $2 billion to accomplish this task. Senator Elizabeth Warren and Representative Elijah Cummings are pursuing answers to why the consultants were paid so much for such desultory work.

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Regulators to big banks: we trust you

first tuesday insight

You’ve heard of too big to fail (and more recent, too many to fail). This means that by virtue of a bank’s largesse, there is no amount too high for taxpayers to pay in order to keep the bank from going under. JPMorgan Chase, for example, was given $25 billion as part of the Troubled Asset Relief Program (TARP).

These piddling payouts make it clear that the same is not true for the great and silent mortgaged homeownership population. Apparently, while the big banks are deemed indispensible to our economy, those who actually create value in the economy are expendable.

This is not about right and wrong, or even some abstract notion of fairness. It is about economics. If we’ve learned any lessons from this protracted Lesser Depression, we can’t just bail out the banks, we need to bail out the people!

This bailout could take any number of forms. Some have suggested a debt jubilee, where personal debts, including credit cards and student loans, are forgiven. Remember, banks do not have money, they just facilitate the flow of money from the Federal Reserve to you (and this reporter).

For real estate, we need to consider the cramdown.

The negative equity crisis has gone on for so long that it has started to be regarded as normal. Consider the wealth and spending that would be unleashed on the economy if government-owned loans (Fannie and Freddie) were crammed down to their present fair market value (FMV).

If this were done on a large enough scale, the economic recovery to full employment, including a robust real estate recovery, would happen within a year’s time. Think of it as the ultimate shot of economic adrenalin.

Re: “First checks to be issued in mortgage settlement” from the New York Times