Thoughts & Comments
The Government's Robo-Signing Shakedown
No one was harmed. The problem's been fixed. What's with the $20 billion?

Thomas Brown  ( about me )
Posted 05/20/2011
bankstocks.com
tbrown@bankstocks.com

My favorite lines from Karl Rove’s op-ed in yesterday’s Wall Street Journal, on the government’s proposed $20 billion “robo-signing” settlement with the banks, are these:

It is fundamentally unfair, even devious, to fleece banks out of billions, ignore victims of "robo-signing" who were wrongly evicted, and then hand out cash to cronies. The $20 billion bank stick-up is a transparent attempt to pay some voters a thinly disguised election year bribe, while pretending the money didn't come from millions of middle-class families with a checking account, loan or credit card at an affected bank. 

That’s exactly right. What the Justice Department and the state attorneys general have in mind for the banks is essentially an extortionfest. For all the hand-wringing over the robo-signing “scandal,” I have yet to read of a single family—there’s probably one or two somewhere, but no reporter seems to have found them—that was current on its mortgage but wrongly evicted by some evil bank, anyway. That would be a scandal. But it didn’t happen. Which is to say, there are no true victims here. The problem, to the extent there was one, involved paperwork and record-keeping. The government and the banks have already reached an agreement to revise the banks’ (admittedly out-of-date) mortgage servicing practices. Case closed. Or, at least, it should be.

Yet the DoJ and the AGs want the banks to cough up $20 billion, anyway. (That would be $20 billion don’t forget, that might otherwise be lent to, say, individuals and small business.) And for what? To compensate delinquent borrowers who were evicted after getting to live in their homes for 18 months or more rent-free? What sense does that make? Certainly the $20 billion wouldn’t be enough to help heal the housing market. Delinquencies there run in the trillions. Instead, most states will likely use the proceeds to distribute to politically favored groups. It will be a boondoggle endowment, in other words. 

Worst of all, all the DoJ’s and AG’s shakedown efforts are doing is stalling the one process, that of repossessing and disposing of foreclosed homes, that will end the housing crunch one and for all. The government is freezing that process in place, instead. That’s bad. As long as bank inventory hangs over the home market, prices can’t recover. If the government were really interested in a solution, it would step back and let the disposition process run its course.  

What do you think? Let me know!


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Bill the ex-banker Posted On 5/20/2011 11:42:19 AM

Yes, Tom. The banks who ran around legal loopholes to create mortgage-finance entities to get around lending limits, they are without blame. Yes, Tom. The WS brokerages who got into mortgage lending with no experience in mortgage lending, they are without blame. Yes, Tom. It's all the borrowers' fault. They are pond scum for wanting to own homes. Brokers said they could live principal-free for a year. Brokers said they could live the dream of land ownership. Brokers said everything would be OK. Yes, Tom. Everyone in America has a BS in Finance. They all knew they were getting in to situations that were untenable. Yes, Tom. You have become a shill. A shell of your former self. Have some f***** empathy for a change. Buh bye.

Bill the ex-banker Posted On 5/20/2011 11:43:09 AM

By the way, any time you cite Karl Rove as a source of knowledge, you make yourself more stupid by the minute.

JimTn Posted On 5/20/2011 11:45:25 AM

The only thing that was harmed by this scandal was integrity. Let the banks give him the $20 billion dollar check.. if they can find out where he lives. (Hint: He doesn't live in DC)

ETO Posted On 5/20/2011 11:47:32 AM

Tom, your view overlooks the fact that the public is very angry at the way the banks conducted this part of their business. They were cavalier and worse toward a big segment of the banking/housing finance market. Not exacting some sort of remedy (maybe it doesn't have to be a cash penalty) is simply not reading the consumers' mood correctly. It would be easy and viscerally satisfying to rail against the greed but it's not that simple. The banks abdicated their responsibilities here with awful consequences. The banks need to understand that actions have consequences.

c. ronson Posted On 5/20/2011 11:48:27 AM

Every "robo" signer claiming to have done proper checking was consciously making a false attesting to a court. That is the problem. If I do that, it is perjury. If Tom Brown does that, it is also perjury. Apparently, if a major financial institution does that, it is just "boys being boys". There is an explicit double standard - too big to fail (TBTF) vs. everyone else. I know there is a double standard and have invested accordingly. However, I find your attempt to justify a double standard by saying "no one has been hurt" (or any other ledgermain), offensive, both to yourself and me. Be honest, they lied, committed perjury and will be let off. I am long BAC stock and Merrill Trust Pfd stock because I know who controls the Treasury.

Jack Posted On 5/20/2011 11:49:53 AM

Right on the money

Brian H Posted On 5/20/2011 11:56:12 AM

No, it would be $150 billion or so that might otherwise be lent...

Robert Halleck Posted On 5/20/2011 12:12:58 PM

Tom, I disagree. The amount may be too large but the thought is correct. The banks knew they were doing wrong and yet they did it. Remember the lines in Judgment at Nuremberg when Burt Lancaster asks Spencer Tracy "When did I go wrong?" Ans. "the first time you convicted a man you knew was innocent." The banks knew it was wrong and yet management condoned the practice. End of story.

jsc173 Posted On 5/20/2011 12:21:25 PM

Banking is being regulated to achieve the maximum desired political result - nothing more, nothing less. You would expect this approach in the regulation and "punishment" of so-called "legal vices" - tobacco and alcohol - but banking?? This sort of protection racket being run by DoJ is worthy of Tony Soprano.

Steve Bills Posted On 5/20/2011 12:50:49 PM

Sorry, Tom, but there have been real world victims. A five minute search on Huffington Post turned up this couple's story: http://www.huffingtonpost.com/2011/02/16/phh-mortgage-servicing-foreclosure_n_823768.html This roundup by AP: http://www.huffingtonpost.com/2010/12/08/homeowners-wrongfully-foreclosed-upon_n_794194.html This report, focusing on military families: http://www.huffingtonpost.com/2011/05/05/banks-illegal-foreclosure-soldiers-gao-report_n_858207.html I'm sure it's real sad what the poor banks have been through, but they have committed real wrongdoing. But the penalties should be assessed against the banks executives with their fat paychecks, not against the banks' depositors and borrowers.

Steve Bills Posted On 5/20/2011 12:51:09 PM

Sorry, Tom, but there have been real world victims. A five minute search on Huffington Post turned up this couple's story: http://www.huffingtonpost.com/2011/02/16/phh-mortgage-servicing-foreclosure_n_823768.html This roundup by AP: http://www.huffingtonpost.com/2010/12/08/homeowners-wrongfully-foreclosed-upon_n_794194.html This report, focusing on military families: http://www.huffingtonpost.com/2011/05/05/banks-illegal-foreclosure-soldiers-gao-report_n_858207.html I'm sure it's real sad what the poor banks have been through, but they have committed real wrongdoing. But the penalties should be assessed against the banks executives with their fat paychecks, not against the banks' depositors and borrowers.

Former Chicago resident Posted On 5/20/2011 12:59:01 PM

The ignorance displayed by these comments is breathtaking. Here's my favorite part of the Rove piece: "This is not the behavior of a transparent, honest and accountable leader, which Mr. Obama held himself out to be in 2008. The real Obama turns out to be fully versed in the Chicago Way. The bank heist is merely the latest example." Truer words have not been spoken. Look up the GM bailout, or the amounts handed to Fannie / Freddie / AIG. Those absolutely DWARF the TARP money given to the banks, WHICH BY THE WAY HAS BEEN MORE THAN FULLY REPAID. Lay off the banks, people. The taxpayer money sinkholes of AIG / GM / Fannie / Freddie are far, far, far worse, yet receive 1/100th of the press. Facts are incovenient things. -Former Chicago resident

spreadman Posted On 5/20/2011 4:21:53 PM

they are just like ambulance chasers, but the victim doesn't share in the payoff

Southern Boy Posted On 5/20/2011 4:22:57 PM

Seems that banks are being singled out here for something that was part of a stinkin' stew of bad practices. Lax regulations, ethically challenged bankers, ignorant Congressmen, greedy investors, cheating mortgage originators, liar loan applicants, sleepy regulators... they all played a part in this mess. So tell me why the banks are ponying up $20B and who is going to get it? Not the people who were harmed, as they are all underwater and out of their homes. The winners at this point would be a bunch of AGs who are prepping to run for Governor or some other higher office and use this "win" as a feather in their cap. Total insanity, unless you live in the surreal world "inside the Beltway".

RAC Posted On 5/20/2011 5:01:25 PM

Slap On Wrist for systematic forgery if not perjury. And if nobodies also go to prison for the massive fraud, then money is literally buying justice. The scandal is the abortion of fidelity in due process.

Mike Posted On 5/20/2011 11:51:11 PM

Wrong the banks created this ballon by giving away, not loaning this money. The properties are all underwater now and they should reduce the principle on all loans stop blaming the homeowners

btashchuk Posted On 5/22/2011 12:27:03 AM

I agree with most of the comments here. Maybe if *everyone* who was complicit in all the criminal activity (liars, enabling bankers, robosigners) went to *jail* then there wouldn't be any need for financial penalties. Perhaps (but I doubt it), slapping the banks with a $20B clue-by-four will keep the worst of these excesses from happening again for the next 20 years or so, until everyone forgets these "lessons learned".

Frank Posted On 5/23/2011 10:09:36 AM

If you live in a non recourse state ( you can walk away from your mtge. with impunity) why would you even consider paying off your under water mortgage debt, if the govt. apparentely is going to reward deadbeats? This $20 billion will do NOTHING to help solve the residntial r/e problems, and more probably will make mortgages even harder to get in the future and prolong the agony.

GreatArticle Posted On 5/23/2011 10:34:34 AM

There's a reason Bill is an ex-banker. How about some empathy for responsible people who can't get loans because the banks are being coerced to pay for homes of irresponsible people. "Mercy towards the guilty is cruelty towards the innocent." This principal applies to delinquents just as much as crimimals. It's time that people start adhering to principles instead of their own misguided values.

GreatArticle Posted On 5/23/2011 3:41:55 PM

There's a reason Bill is an ex-banker. How about some empathy for responsible people who can't get loans because the banks are being coerced to pay for homes of irresponsible people. "Mercy towards the guilty is cruelty towards the innocent." This principal applies to delinquents just as much as crimimals. It's time that people start adhering to principles instead of their own misguided values.

jack  Posted On 5/26/2011 12:54:46 PM

one more Obama.... (fat cat bankers) community organizing reflex moves .... what would Sharpton do??

Bob the engineer Posted On 5/30/2011 9:39:10 PM

Bill the ex-banker, you are an idiot. What else can I say?

Anthony Gross Posted On 6/1/2011 4:30:38 PM

Hi Tom As a small unitholder in your funds, I wanted to thank you for appearing on Bloomberg TV today. I happened to see you short TV interview. I find your media appearences usful to understand your investment ideas. One comment is that your website needs a media section which as links to all your public statements. Regards AG

bruce80 Posted On 6/10/2011 3:10:10 PM

Its worse, the $20 billion comes out of the bank's capital, so the lending is reduced by $20 billion / .07 or $285 billion.

bruce80 Posted On 6/10/2011 3:16:43 PM

"Every "robo" signer claiming to have done proper checking was consciously making a false attesting to a court." If the falsehood is simply saying you read the document, while in fact you did not, but the document is nonetheless genuine, and the signature is genuine, and the borrower in fact is behind on the payments in violation of the terms of the loan documents, the falsehood is IMMATERIAL. There is no penalty for or crime in making a misrepresentation which is immaterial.
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