In late January we reported yet another settlement reached by the big banks and the federal government. The settlement put a stop to what was supposed to be a sweeping review of foreclosure abuses perpetrated during the real estate crisis. In essence, the banks paid-off the feds, promising to distribute nearly four billion dollars to those homeowners they wronged.
Well, the banks have paid up, delivering billions into the hands of federal regulators at the Office of the Comptroller of the Currency (OCC). In an interesting twist, the OCC is handing the money right back, telling the banks to deliver it directly to their jilted borrowers.
The move was to streamline the process and accelerate payouts, according to the OCC. Eliminating the so-called middlemen of the process, it will be left up to the banks to review the mountainous stacks of loan files and determine which loans were handled improperly.
Advocates of the plan argue the banks have no incentive to cheat during the process since the settlement amount has already been agreed upon.
first tuesday insight
No, this is not a joke.
The OCC actually trusts the big banks — the very banks that were unspeakably irresponsible in handling fraudulent foreclosures on their fraudulent loans. Whoever thought this was a good idea is obviously completely ignorant to how the big banks work.
True, there is no incentive for the banks to cheat in this case. But cheating is not really the issue. It’s competence that we are concerned with. While there is no incentive for the banks to cheat, there is likewise no incentive for them to perform with accuracy, speed or integrity. And since incentives (in the form of profit) are the only thing lenders respond to, we don’t expect this plan to turn out well.
Justice was already aborted once when regulators decided to settle rather than prosecute. Now they are shirking their duty to oversee the equitable distribution of settlement funds. How does that saying go? Fool me once. . .
Re: “Big banks are told to review their own foreclosures” from the New York Times