For those who have been waiting for justice for the banks that caused the mortgage crisis, the past few weeks have been pretty eventful. On Oct. 25, J.P. Morgan Chase settled a lawsuit with the Federal Housing Finance Agency for $5.1 billion and on Oct. 23, Bank of America, which chose not to settle out of court, was found liable for fraud connected with mortgage-based securities, for which the Justice Department will likely try to get less than a billion dollars from the bank.
Of course, the $5.1 billion in Chase settlement money won’t be going directly to the homeowners who were deeply affected, but to Fannie Mae and Freddie Mac. This is the first step in a settlement plan that is set to total $13 billion, $4 billion of which will go directly to consumers who were directly affected.
The case against Chase involved its attempts to mislead Fannie Mae Freddie Mac about the quality of mortgage-backed securities. The settlement doesn’t clear Chase of any possible criminal charges in the future, and a federal investigation into the banks possible mortgage-related criminal activities is ongoing.
Thirteen more banks are being investigated, mostly on civil grounds. While numerous civil suits have already been decided against big banks for their role in the financial crisis, there has yet to be a criminal conviction of a Wall Street executive. Goldman Sachs faced the possibility of a criminal trial after a congressional investigation recommended executives be put on trial, but the Department of Justice dropped the charges.
For those who represent or are homeowners in foreclosure, the news is heartening in that we can finally see action (that should have been taken about five years ago) against the banks. It doesn’t put people back in their houses. It doesn’t repair their credit. It doesn’t jump start an economy that threatens to stagnate at the drop of a hat. But at least there is an acknowledgement of what entities were to blame. And amazingly, it isn’t the homeowners who took on more debt than they should have, believed the inflated property values they were given for taking on loans, or used their houses as ATMs. But also, not surprisingly, they aren’t the ones who will benefit from the action that the government is taking against the “too big to fails.”
So who will benefit? Well, the government that shelled out and continues to shell out for the cost of the bad loans sold to Fannie and Freddie. And if there is any justice, the government will look to those who really were the innocents who were hurt by the behavior of the banks. The settlements from the Attorney General went more to the not-for-profits who help homeowner than directly to the homeowners themselves. Will that be enough? Probably not those who will be renting for the next two to five years.