It is interesting that some attribute the phrase “Monkey on my back” to an older phrase: “Monkey on the roof,” which referred to one’s mortgage. Well, call it a monkey or a 900-pound gorilla – either way – Bank of America just loosed some kind of opposable-thumb animal from its back. One troubling aspect of the major post-housing boom bank settlements (among many others for certain) is that much of the settlement payouts will come in the form of “consumer relief,” which includes: loan modification for distressed borrowers, including FHA-insured borrowers, new loans to credit worthy borrowers struggling to get a loan in the nation’s hardest hit areas, borrowers who lost homes to foreclosure or short sales, and moderate income first-time homebuyers, reductions in mortgage principal and monthly payments for consumers struggling to hold onto their homes, funds to take over and tear down derelict housing, and assistance for building or refurbishing affordable rental properties. For instance, in the recently-announced Bank of America settlement, of the $16.65 billion, Bank of America will shell out $7 billion in “consumer relief.” While this is certainly welcome news, for many, this kind of relief is no longer even an issue, as so many people lost their homes to foreclosure.
I am convinced that if the major banks could have simply written down principal, reset interest rates, or made it easier to short sale a house, much of the initial pain of the financial crisis might have been averted. However, the securitization of so many of the loans that Countrywide, Washington Mutual, and other mortgage mills were packaging and sending the secondary markets made it systemically impossible for many of the mortgage servicers to really do anything to help homeowners facing nasty rate resets or unforeseen circumstances. Securitization has made decision making nearly impossible, as trusts with many, many investors simply cannot make the day-to-day decisions on individual mortgage cases.
Now, I am not all cozy on the side of many housing advocates and others who simply want to take every opportunity to lay the blame on the banks, thought there is much to point at indeed. The housing bubble, its subsequent burst, and the attendant pain to follow was a complex web of communal bad decision making, greed, and stupidity. Let’s be honest here. Fortunately, the settlements seem to be getting more focused and addressing past deficiencies, such as the consequential tax hit that some may face when receiving relief, especially since the expiration of the Mortgage Debt Relief Act of 2007. Indeed, as part of the Bank of America settlement, it may pay up to $490 million to cover taxes distressed homeowners may owe when some of their mortgage debt is forgiven. In coming months, Bank of America will be responsible for scouring its mortgage portfolios, identifying eligible homeowners and contacting them for relief or homeowners can contact 877-488-7814 for more information as to whether they may be eligible.
No easy answers in all this, but at least the government has continue to wage battle against the top financial firms, even if they will never exact the amount of flesh necessary to really make these banks think twice about pursuing greed in the same fashion as they did in the last run up. Sadly, there is little evidence in history to suggest it will not happen again – the only difference being the asset.