So why are American homeowners extrimmensaordinarily screwed? Well first, there's this:
Bank of America Corp. (BAC), the biggest U.S. lender by assets, is segregating almost half its 13.9 million mortgages into a “bad” bank comprised of its riskiest and worst-performing “legacy” loans, said Terry Laughlin, who is running the new unit. [...]
The legacy portfolio will hold 6.7 million of loans with outstanding principal balance of about $1 trillion, according to a presentation to investors today. The split leaves home loan President Barbara Desoer with about half her previous portfolio, as well as new lending going forward.
Laughlin’s portfolio will include loans that are currently 60 or more days delinquent as well as riskier types of loans the bank no longer originates, such as subprime, Alt-A, interest- only and option adjustable-rate mortgages, he said. He said the portfolios will be completely split by March 31 and that his will be liquidated over time. Of the 13.9 million loans Bank of America services, about 3.5 million are held by the company on its balance sheet. The rest are owned by other investors.
You got that? Literally half of BofA's mortgages are garbage that the company wants to sweep under the rug. Here's the punchline:
“It’s a way to get investors focus on the good,” said Paul Miller, a former examiner with the Federal Reserve Bank of Philadelphia and analyst at FBR Capital Markets in Arlington, Virginia. “It’s a way to talk about good things and ignore the bad.”
I'm not sure how declaring that nearly 7 million of your mortgages are worthless pieces of trash gets anyone to focus on the positive, but hey, whatever gets you through the night and so forth.
Meanwhile, America's attorneys general have released their proposed settlement terms with the banks over their widespread use of fraudulent practices during thousands of foreclosure cases across the country. Needless to say, the proposal is underwhelming. Felix Salmon breaks it down thusly:
For those who can wade through it, however, it really is a code of best practices for servicers and it’s sorely needed. There’s much to love here, but it all basically comes down to the golden rule: treat your borrowers with honesty and humanity and common sense and you’ll be fine. Do servicers really need to be told that if they make more money from a loan mod than from a foreclosure, they should do the loan mod? Or that “sworn statements shall not contain information that is false”? Evidently, yes, they do. [...]
[T]he big question here isn’t whether the settlement is reasonable — yes, it’s entirely reasonable. Instead, we should ask what the penalties for non-compliance are, since just about every servicer will be non-compliant for the foreseeable future.
Those penalties come at the end of the document and they’re extremely vague: there’s talk of “monetary penalties and additional remedial actions”, but there’s also talk of “failure to meet timelines”, which implies that much of this stuff could be pushed off far into the future and of “a special master or referee to resolve violations”, with no indication of how such a person might be chosen.
This is pretty much what I've come to expect from the American government when confronted with a case of widespread, systematic fraud committed by the financial services industry: Issue a bunch of vaguely-worded guidelines, lightly chide the banks for their ever-so-naughty behavior and make murky declarations that maybe in the future someone will be held accountable for defrauding people, but not right now.
Stephanie at FedUpUSA drops her jaw at the fact that part of the AGs' "settlement" mandates that banks promise to, you know, obey laws that apply to just about everyone else: