President Obama’s financial regulators are reportedly negotiating a secret settlement with 14 banks to end an investigation into predatory loans and foreclosures because federal investigators are having trouble finding the evidence they need for a successful end to the probe.
Fourteen banks — such as JP Morgan Chase, Citigroup, and Bank of America — would pay $10 billion, under the settlement, that would be used for relief for homeowners and families that have lost their homes.
What do the banks get? “The proposed settlement would also halt a separate sweeping review of more than four million loan files that the comptroller’s office and the Federal Reserve required the banks undertake as part of a consent order in April 2011,” The New York Times reports.
That’s an improvement on the status quo for the banks — it could save the banks as much as $10 billion on the review alone. Based on figures in the Times report, initial estimates suggested that the review would cost $8 billion, but “the costs of the reviews have ballooned” such that it could cost $20 million if it were to be carried out. And that’s just the cost of the review — it doesn’t account for what the banks would then have to do to ameliorate any problems uncovered by the review.
The federal government likes the idea of a deal because the investigation is going poorly. “In private meetings with top bank executives, these people said, regulators have admitted that the reviews had gone awry,” per the Times. “At one point this month, an official from the comptroller’s office said the agency had ‘miscalculated’ the scope and requirements of the reviews, according to the people with knowledge of the negotiation.” Sources also said that the review is not going to “yield promised relief to homeowners.”
So, the Obama administration is using the review as leverage to convince the banks to settle, which will end with a photo op for the president and a speech about holding Wall Street accountable, even as he gives them a better deal relative to their current position.
The House Oversight and Government Reform Committee had to learn of the secret talks from the press, even though it is conducting it’s own investigation into “improper actions during loan servicing and processing” taken by these 14 banks.
“In light of these recent press reports suggesting that a settlement may replace the Independent Foreclosure Review process, we respectfully request a staff briefing prior to the conclusion of the reported settlement agreement,” Committee chair Darrell Issa, R-Calif., and Ranking Member Elijah Cummings, D-Md., wrote in a letter today to Federal Reserve Chairman Ben Bernanke. “We would like more information about how the potential settlement amount is to be determined in light of potential wrongdoing identified to date, how such aid may be distributed and in what form, and what may happen to homeowner files that are still awaiting review.”