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You’re Screwed by Wall Street Mortgage Settlement

Posted by Larry Doyle on March 20, 2012 1:06 PM |

The American system of justice used to be predicated on the fact that those who committed transgressions paid the penalty. Regrettably, that system of justice is now a distant memory in regard to the adjudication of certain massive and egregious financial practices.

Has it become all too overwhelming for you to keep up with the violation of contracts and moral hazards in America today? I implore you not to give up the fight as future generations are counting on us to stand up for real justice. I addressed the injustice last week in writing, Mortgage Settlement Defines Racketeering:

If the Wall Street mortgage settlement is supposed to define justice, then crime certainly does pay.

Having asked repeatedly in 2011 whether Wall Street mortgage servicing practices qualified as a racket and thus the charges filed should have been addressed as a RICO violation, yesterday we received our answer.

By any measure of ‘sense on cents’, the evidence provided screams of a RICO violation. The verdict delivered? Crime pays.

In typical white collar fashion, though, the only face on this crime is that of the American taxpayer who gets screwed coming and going.

How does the American taxpayer get screwed? How is part of this supposed Wall Street settlement being foisted off onto Main Street? How does the settlement violate basic virtues promoted at Sense on Cents?  Thanks to a regular reader for pointing me in the direction of the Association of Mortgage Investors which highlights where and how the ‘screwing’ occurs in the following release:

The Association of Mortgage Investors Laments the AG Foreclosure Settlement Filing; It Fails to Adequately Protect Homeowners; Will Likely Negatively Affect Average Americans, Unions, and Seniors

The Association of Mortgage Investors (AMI) represents the managers of mutual funds and long-term investors for state and local pension and retirement funds for a range of public institutions, including unions, teachers, and first-responders. AMI members are fiduciaries for their clients. In that capacity, it is incumbent upon them to review any and all situations that would impact their clients’ investments, such as the recent filing of the settlement.

AMI has been on-the-record as supporting a settlement of claims against the mortgage servicers, provided that it does not harm average Americans and their 401Ks. This means that any settlement must be appropriately designed to address such alleged wrongdoing while not settling with the money of innocent parties. The retirement security of these innocent parties will likely be impacted by this settlement as it is currently filed. The settlement was negotiated among the state Attorneys General, the federal government, and certain mortgage servicers. On behalf of the public interest, AMI asks that the settlement be amended in the interest of those not a party to the settlement and not responsible for the claimed bad acts.

As the federal court reviews the final settlement, AMI asks that the following changes be made on behalf of all investors:

Transparency. The NPV (net present value) model incorporated into the settlement must consider all of a borrower’s debts, be national in scope, transparent, and publicly disclosed; the NPV model must be developed by an independent third-party. An incorrect NPV model likely will lead to further re-defaults and further harm distressed homeowners.

Monetary Cap to Protect Public Institutions. As intended, the settlement causes financial loss to the abusers (the bank servicers and their affiliates). Unfortunately, the settlement is expected to also draw billions of dollars from those not a party to the settlement, including public institutions, unions, and individual investors. It places first and second lien priority in conflict with its original construct thereby increasing future homeowner mortgage credit costs. It is unfair to settle claims against the robosigners with otherpeople’s funds. While we request that it not be done, at a minimum we request that a meaningful cap be placed on the dollar amount of the settlement satisfied by innocent parties. Again, restitution should come from those who are settling these claims, and lien priority must be respected.

Public Reporting. We ask that the settlement Administrator be required to make reports public and available on a monthly basis, reporting progress on clearly defined benchmarks and detailing on both a dollar and percentage basis whether the mortgages modified are owned by the mortgage servicers or the general public.

Investor Stakeholder Participation. Our clients and the general public are important stakeholders in this settlement. Yet we were excluded from the negotiations over the past 15 months. As long as we are affected, investors must be included in any further negotiations with additional servicers in the future.

The consequences and the mechanism underlying this settlement greatly concerns investors, including:

The establishment of a precedent that condones the bad debts of others are paid by innocent, responsible parties; and,

The settlement will undo contractual obligations and have second liens treated in pari passu with other senior debt.

AMI supports long-term, effective, sustainable solutions to the housing foreclosure crisis. It is generally supportive of a settlement if it ensures that responsible borrowers are treated fairly throughout the foreclosure process; while at the same time providing clarity as to investor rights and servicer responsibilities.

The ultimate settlement should ensure that our clients, who were not involved in the alleged activities and, who likewise were not a participant in any negotiations, do not bear the cost of the settlement. Specifically, mortgage servicers, if at all, should only receive limited, reasonable credit for modifying mortgages held by third parties, which are often pension plans, 401K plans, endowments and “Main Street” mutual funds. To do otherwise, will damage the RMBS markets further and limit the ability of average Americans to obtain credit for homes for generations to come.

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The Association of Mortgage Investors represents private investors, public and private pension funds, and endowments, all of whom support the efforts of Congress and the Administration to help responsible, though distressed homeowners avoid foreclosure. For more information, visit

The AMI’s release embodies the commonly found principles of truth, transparency, and integrity touted regularly here at Sense on Cents.

Bang the drum and let your elected representatives know that the form of justice displayed within this mortgage settlement may be consistent with the practice of crony capitalism, but for real Americans IT SMELLS. I very much believe that this settlement covers up practices which qualify as a RICO (racketeering ) violation.  

Isn’t it time to  subscribe to all my work via e-mailRSS feed, on Twitter or Facebook?

Do your friends, family, and colleagues a favor and get them to do the same. Thanks!!

I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets, our economy, and our political realm so that meaningful investor confidence and investor protection can be achieved.

Larry Doyle 

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