Tag Archives: Wells Fargo

Housing Bust Is Over! Not So Fast.

The housing experts, Ben Bernanke, the Obama administration, and the Wall Street Journal all want us to believe that the housing market has turned—at last.

 

The next thing out of his mouth will be Quantitative Easing, Round 3.

Headlines like this are in the news this week: “The U.S. finally has moved beyond attention-grabbing predictions from housing “experts” that housing is bottoming. The numbers are now convincing.”

And this: “Nearly seven years after the housing bubble burst, most indexes of house prices are bending up. “We finally saw some rising home prices,” S&P’s David Blitzer said a few weeks ago as he reported the first monthly increase in the slow-moving S&P/Case-Shiller house-price data after seven months of declines.”

Housing starts rose 6.9 percent to a 760,000 annual pace after a revised 711,000 rate in May that was faster than initially estimated, the Commerce Department reported today in Washington. The median forecast of 79 economists surveyed by Bloomberg News called for a 745,000 rate. Which means they were off by 2%. I don’t think this grounds for celebration.

Nearly 10% more existing homes were sold in May than in the same month a year earlier, many purchased by investors who plan to rent them for now and sell them later, an important sign of an inflection point. In something of a surprise, the inventory of existing homes for sale has fallen close to the normal level of six months’ worth despite all the foreclosed homes that lenders own. The fraction of homes for sale that are vacant is at its lowest level since 2006. Which means nothing since the 2006 number was normal, and banks have been holding on to property that they have foreclosed in order to not flood the market and drive up inventory.

In other words, these numbers are completely manipulated by the banking industry in an attempt to normalize the markets.

“Even with the overall economy slowing,” Wells Fargo Securities economists said, cautiously, in a note to clients, “the budding recovery in the housing market appears to be gradually gaining momentum.”

Housing is still far from healthy despite the Federal Reserve’s efforts to resuscitate it by helping to push mortgage rates to extraordinary lows: 3.62% for a 30-year loan, according to Freddie Mac‘s latest survey. Single-family housing starts, though up, remain 60% below the 2002 pre-bubble pace. And, by the way, try qualifying for a mortgage these days. Ha!

Americans‘ equity in homes is $2 trillion, or 25%, less than it was in 2002 and half what it was at the peak, in 2006. More than one in every four mortgage borrowers still has a loan bigger than the value of the house, though rising home prices are reducing that fraction very slightly.

Still, the upturn in housing is a milestone, a particularly welcome one amid a distressing dearth of jobs. For some time, housing has been one of the biggest causes of economic weakness. It has now—barely—moved to the plus side. “A little tail wind is a lot better than a headwind,” says economist Chip Case, the “Case” in Case-Shiller.

 

From here on, housing is unlikely to be the leading drag on the U.S. economy. It will instead reflect the strength or weakness of the overall economy: The more jobs, the more confident Americans are about keeping their jobs, the more they are willing to buy houses. “Manufacturing had led growth and construction had lagged,” JPMorgan Chase economists said last week. “Now the roles are reversed: Manufacturing growth has slowed as private construction comes to life.”

Unfortunately, as we see fewer jobs, all of the new construction will result in a huge inventory of new homes and further bloat an already bloated market.

The biggest threat is that large shadow inventory of unsold homes, homes which owners won’t put on the market because they are underwater, homes that will be foreclosed eventually and homes owned by lenders. Another threat is the holdback that the banks have been managing around homes already in foreclosure, so as to not flood the market. They have been trickling onto the market, slowed in part by government efforts to delay foreclosures; a flood could reverse the recent rise in prices. Or the still-dysfunctional mortgage market could get even worse. 

Don’t believe what you read, folks. The housing bust is far from over.

 

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Peer-to-peer Lending Update.

It’s time for an update on peer-to-peer lending and social finance.

Years ago, clipping coupons from bonds was the province and passion of people in retirement. Today, a tidal wave of aging boomers want income, but traditional sources basically suck. Ten-year ­Treasury’s yield 1.6%. Safe-money bank CDs? 0.5%. Investment-grade corporate bonds are delivering 3.2%.

So retiring boomers are seeking alternatives. That’s why dividend stocks and annuities are very popular. But, there’s another cool source of high yield investments that are rapidly growing in popularity. Peer-to-peer lending, or making personal loans via the Internet, using websites like LendingClub.com and Prosper.com, have proven to represent a new and attractive asset class for a broad range of investors.

       

They have been around for 6 years and have had some bumps, including weathering a financial crisis and the current recession, peer-to-peer (P2P) lending has earned its place on an income investor’s menu.

The basic premise of these bank disintermediaries is that they harness the networking power of the Web to match people who have excess cash, with people in need of it, or those who simply want to do things like refinance credit card debt.

The key to its success has been how the sites have managed the inherent riskiness of unsecured personal loans. Believe it or not, it is now possible to earn yields of 6% or more, making relatively safe loans to complete strangers.

Los Angeles financial advisor Brendan Ross committed $300,000 of his own money to Lending Club in early 2011. Based on his quarterly interest payments he claims he has accrued about $40,000 in income to date. Annual yield: 10.2%.

“I’d been tracking the P2P space pretty much since the inception,” Ross says. “I was waiting to feel like its loan underwriting model had matured.”

San Francisco’s Lending Club is the largest P2P lender, followed by its crosstown rival Prosper. And, there are several other, specialized sites (like iPeopleFINANCE) who offer a lending model that is different than the securitized model of Lending Club and Prosper. These offer a direct lending model where an investor chooses one individual borrower based on an affinity profile and makes a small, short term loan where the investor can earn higher interest rates, yet still be able to enjoy mitigated risk.  Lending Club and Prosper have loaned a total of more than $1 billion since inception, in 112,000 loans.

Lending Club currently issues about $45 million in loans a month versus Prosper’s $13 million per month. Prosper ran afoul of the SEC in 2008 and temporarily shut down to “revamp its risk-assessment model” which is corporate code for getting into SEC compliance.

At Lending Club, after a quick registration you can sort through hundreds of potential loans. Each loan has its own risk rating, term (either 36 or 60 months) and rate of return.

Loans with the highest rating—based on the borrower’s FICO score and some additional analysis—pay in the 5% to 9% range—about the same as junk bonds. Interest rates on riskier loans range as high as 31%. Both companies also offer diversified funds of aggregated loans and IRA options.

Lending Club and Prosper vet thousands of loan applications, whittling down the pool to only those borrowers the company deems least likely to default. Renaud Laplanche, cofounder and CEO of Lending Club says his firm declines about 90% of all borrower applications, focusing on the 10% of borrowers with the best credit. Which makes them essentially, banks.

Of course, defaults do happen. Lending Club’s top-rated three-year loans expect a default rate of around 1.4%, and the riskiest loans, offering rates as high as 25%, have a 9.8% default rate. By contrast junk bonds have an average default rate of 1.9%.

It’s prudent to opt for the pools of hundreds of P2P loans both sites offer. That’s how advisor Ross is earning 10%, despite a handful of defaults on direct loans he made, because his defaults were offset by his performing loans. With the emerging market lenders like iPeopleFINANCE, the investor cannot hedge his risk in the same way, but due to iPeople’s proprietary credit scoring algorithm, an additional 20% of applicants get funded, and get a higher credit rating than their FICO scores would yield from the big-3 credit bureaus.

Additionally, iPeople insures that each borrower has in place a free, pre-paid, re-loadable debit card that receives a direct deposit with each paycheck that guarantees the loan payment, so the risk of default is very low. iPeople is targeted to young Gen-Yers and to returning Vets from Iraq and Afghanistan. Both of these groups have had little opportunity to establish credit, prefer a more cash-oriented lifestyle, and seek relationships with non-traditional banks. iPeople offers a suite of mobile cash applications tied to the debit card, that can be downloaded to smart phones, and can efficiently deliver banking services to customers 24 hours a day, 7 days a week, wherever they may be.

John Mack, former chairman of Morgan Stanley, is a convert to P2P lending. After committing several million of his own capital to such loans, he joined Lending Club’s board in April, lending a strong measure of credibility to the space.

Of course, a couple of former Wells Fargo executives have joined iPeople’s board as well, sending strong messages to the markets that peer-to-peer lending is here to stay.


Flood Of Foreclosures On The Way.

The golden age for foreclosure squatters may soon be coming to an end now that the $26 billion mortgage settlement has been approved.

The settlement, agreed to by the nation’s five largest mortgage lenders, is expected to speed up the foreclosure process by providing stricter guidelines for the banks to follow when repossessing homes.

The banks involved include Bank of America (BACFortune 500), JPMorgan Chase (JPMFortune 500), Citibank (CFortune 500), Wells Fargo (WFCFortune 500) and Ally Financial.

Most foreclosures have been in limbo since fall 2010 following the so-called robo-signing scandal, when banks allowed employees to sign off on thousands of foreclosure documents a month with little verification. Lenders hit the pause button on foreclosures because they “were afraid that anything they did would be under a microscope,” said Eric Higgins, a professor of business at Kansas State University.

As a result, borrowers who were seriously delinquent on their loans have been able to stay in their homes for months, or even years without making a single payment. Nationwide, the average time it takes to foreclose on a home — from the first missed payment to the final bank repossession — stretched to 370 days during the first quarter, almost twice as long as it took five years ago, according to Daren Blomquist, the marketing director at RealtyTrac.

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Reporter Helps to Bring Down Steven J. Baum Foreclosure Mill the New York Times Susan Chana Lask Steven J Baum Joe Nocera Halloween party  real estate related mortgage related debt articles
I know who these ladies are. Don’t bother writing.

In some states, delinquent borrowers have been squatting in their homes much longer. In Florida, the average time was 861 days, and in New York it was 1,056 days — close to three years. “Perhaps a million foreclosures could have been pursued last year but weren’t,” said Rick Sharga, executive vice president for real estate investment company, Carrington Holdings.

But that’s all about to change, he said. “We’re going to see an increase in the speed of foreclosures and a higher number of foreclosure starts.” In fact, there are indications that the pace of foreclosures are already starting to pick up.

While overall foreclosure activity was down during the first quarter, filings were up 10% in the 26 states where foreclosures must undergo court scrutiny, according to RealtyTrac. It was in these judicial states that the processing of foreclosures slowed the most following news of the robo-signing scandal, said Blomquist. Many banks in these states stopped filing foreclosures unless they were extremely confident it would pass muster in the court. (In non-judicial states, foreclosures are reviewed by a trustee, which is a third party such as a title company and less likely to parse every legal document).

But now lenders can move more confidently, said Brandon Moore, RealtyTrac’s CEO.

In the judicial state of Indiana, for example, foreclosure filings were up 45% year-over year. And in Florida, they were up by almost 26%, according to RealtyTrac.

“The dam may not burst in the next 30 to 45 days, but it will eventually burst, and everyone downstream should be prepared for that to happen — both in terms of new foreclosure activity and new short sale activity,” Moore said in a statement.

The resulting flood could bring home prices down even further — yet another impetus for the banks to clear out their foreclosure pipeline as quickly as possible, said Kansas State’s Higgins.

Then, industry thinking is, the housing market would be able to get back to normal and home prices could eventually find their true value. Some industry analysts, such as the chief economist for listing site Zillow, Stan Humphries, are predicting that could happen as soon as the end of the year. Zillow estimates that home values nationwide will fall another 3.7% by the end of 2012, and that price will likely bottom out by early 2013. But, don’t hold your breath. We’re talking about 3 million homes in foreclosure, about to be in foreclosure or about to be bank-owned. I suspect this rush of inventory overhang will knock another 15% off the market, and the bottom won’t be seen until 2014. This is in keeping with Merrill-Lynch‘s earlier forecast just prior to the $26B banking free ride deal. So, if anything it could be 2015 before we hit true bottom. Hold onto those checkbooks, folks, there’s much more to come. 


And You Thought Housing Had Hit Bottom?

Americans brace for next foreclosure wave.

Half a decade into the deepest U.S. housing crisis since the 1930s, many Americans are hoping the crisis is finally nearing its end. House sales are picking up across most of the country, the plunge in prices is slowing and attempts by lenders to claim back properties from struggling borrowers dropped by more than a third in 2011, hitting a four-year low. Yippee, no?

Oops. A painful part two of the slump now looks set to unfold: Many more U.S. homeowners face the prospect of losing their homes this year as banks pick up the pace of foreclosures.

“We are right back where we were two years ago. I would put money on 2012 being a bigger year for foreclosures than 2010,” said Mark Seifert, executive director of Empowering & Strengthening Ohio’s People (ESOP), a counseling group with 10 offices in Ohio.

“Last year was an anomaly, and not in a good way,” he said.

In 2011, the “robo-signing” scandal, in which foreclosure documents were signed without properly reviewing individual cases, prompted banks to hold back on new foreclosures pending a settlement.

Five major banks eventually struck that settlement with 49 U.S. states in February. Signs are growing the pace of foreclosures is picking up again, something housing experts predict will again weigh on home prices before any sustained recovery can occur.

Mortgage servicing provider Lender Processing Services reported in early March that U.S. foreclosure starts jumped 28 percent in January.

More conclusive national data is not yet available. But watchdog group, 4closurefraud.org which helped uncover the “robo-signing” scandal, says it has turned up evidence of a large rise in new foreclosures between March 1 and 24 by three big banks in Palm Beach County in Florida, one of the states hit hardest by the housing crash

Although foreclosure starts were 50 percent or more lower than for the same period in 2010, those begun by Deutsche Bank were up 47 percent from 2011. Those of Wells Fargo‘s rose 68 percent and Bank of America’s, including BAC Home Loans Servicing, jumped nearly seven-fold — 251 starts versus 37 in the same period in 2011. Bank of America said it does not comment on data provided by other sources. Wells Fargo and Deutsche Bank did not comment.

Housing experts say localized warning signs of a new wave of foreclosure are likely to be replicated across much of the United States. I know for sure this is true over in Pebble Beach. Yes, you read right: Pebble Beach, California.

Online foreclosure marketplace RealtyTrac estimated that while foreclosures dropped slightly nationwide in February from January and from February 2011, they rose in 21 states and jumped sharply in cities like Tampa (64 percent), Chicago (43 percent) and Miami (53 percent).

RealtyTrac CEO Brandon Moore said the “numbers point to a gradually rising foreclosure tide as some of the barriers that have been holding back foreclosures are removed.”

One big difference to the early years of the housing crisis, which was dominated by Americans saddled with the most toxic subprime products — with high interest rates where banks asked for no money down or no proof of income — is that today it’s mostly Americans with ordinary mortgages whose ability to meet payment have been hit by the hard economic times.

“The subprime stuff is long gone,” said Michael Redman, founder of 4closurefraud.org. “Now the folks being affected are hardworking, everyday Americans struggling because of the economy.”

“HARD TO CATCH UP”

Until December 2010, Daniel Burns, 52, had spent his working life in the trucking industry as a long-haul driver and manager. When daily loads at the small family business where he worked tailed off, he lost his job.

Unable to cover his mortgage, Burns received a grant from a government fund using money repaid from the 2008 bank bailout. That grant is due to expire in early 2013 and Burns is holding out on hopeful comments from his former employer that he might get his job back if the economy recovers.

“If things don’t pick up, I will be out on the street,” he said, staring from his living room window at two abandoned houses over the road in the middle-class Cleveland suburb of Garfield Heights, the noise of traffic from a nearby Interstate highway filling the street.

Underscoring the uncertainty of his situation, Burns’ cell phone rings and a pre-recorded message announces that his unemployment benefits are due to be cut off in April.

A bit further up the shore of Lake Erie, Cristal Fell, who works night shifts entering data for a trucking company in Toledo, has fallen behind on her mortgage a second time because her ex-husband lost his job and her overtime was cut.

“Once you get behind it’s so hard to catch up,” she said.

Fell, a mother of four, hopes the economy will gather enough speed to help her avoid any risk of losing her home. Her ex-husband has found a new job and she is getting more overtime, so she hopes she can catch up on her mortgage by the fall.

Burns and Fell are the new face of the U.S. housing crisis: Middle class, suburban or rural with a conventional 30-year fixed mortgage at a reasonable interest rate, but unemployed or underemployed. Although the national unemployment rate has fallen to 8.3 percent from its peak of 10 percent in October 2009, nearly 13 million Americans remain jobless, meaning many are struggling to keep up with their mortgage payments.

Real estate company Zillow Inc says more than one in four American homeowners were “under water” or owed more than their homes were worth in the fourth quarter of 2011. The crisis has wiped out some $7 trillion in U.S. household wealth.

“We’re seeing more people coming through who have good loans with reasonable interest rates,” said Ed Jacob, executive director of non-profit lender Neighborhood Housing Services of Chicago Inc, which provides foreclosure counseling. “But in many households only one person works now instead of two, or they had their hours cut.”

“The answer to the housing crisis now is job creation.”

EARLY SIGNS OF UPTICK?

Zillow expects the resurgence in foreclosures this year, combined with excess inventory of unsold, bank-owned homes will contribute to a 3.7 percent national decline in prices before the market hits bottom in 2013 and stays there until 2016. If, it hits bottom next year. Big if.

“The hangover from this crisis will far outlast the party of the boom years,” said Zillow chief economist Stan Humphries.

Getting through the remaining foreclosures and dealing with the resulting flood of homes on the market in the wake of the bank settlement is a necessary part of the healing process for the U.S. housing market, he added.

According to leading broker dealer Amherst Securities, some 9.5 million homes are still at risk of default and in February it said it expected to see the uptick in foreclosures start to hit in March and April.

There is other evidence that many of the foreclosures that did not happen in 2011 will happen this year.

A January report by the Neighborhood Economic Development Advocacy Project in New York found that in the first half of 2011 the number of 90-day pre-foreclosure notices in New York City outnumbered court foreclosure actions by a ratio of 14 to one, indicating that while proceedings were initiated against many homeowners, they were left incomplete. This is a hugely important statistic and one that will be found in every State.

“Now the banks have a settlement, foreclosure numbers for 2012 are going to be high,” said NEDAP co-director Josh Zinner.

A recent survey by the California Reinvestment Coalition, an umbrella group of nearly 300 non-profit groups in the state, of member agencies found 75 percent of respondents expected increased demand for their foreclosure prevention services in 2012 but more than a third had to scale back services because of funding cuts. “Funding is a major concern given what our members expect for this year,” said associate director Kevin Stein.

All this has non-profits intensifying calls for the Federal Housing Finance Agency to drop its opposition to allowing the government-backed mortgage giants Fannie Mae and Freddie Mac it regulates to reduce principal for underwater homeowners.

Principal reduction involves reducing the amount borrowers owe in order to make a loan modification affordable for struggling homeowners. Republicans and the FHFA oppose principal reduction because of the risk of “moral hazard”- that homeowners who do not need help will seek to abuse largesse and have their mortgages reduced too. And, so?

ESOP in Ohio engages in “hits” on Chase branches — they say Chase is the least accommodating major bank when it comes to working with struggling homeowners — where they try to hand letters to bank mangers calling on chief executive Jamie Dimon to lobby FHFA head Edward DeMarco for principal reductions. A Chase spokeswoman said the bank has made “extensive efforts” to work with homeowners, helping 775,000 borrowers stay in their homes since early 2009, avoiding foreclosure “more than twice as often as we have had to foreclose.” A convenient statistic given that Chase was one of the Banks precluded from starting up foreclosure processing due to the robo-signing inquest. Housing groups like ESOP maintain, as they have throughout the housing crisis, that unless the FHFA embraces widespread principal reduction, many more under water borrowers face losing their homes.

“Until banks engage in meaningful principal reduction as a matter of course,” ESOP’s Seifert said after a recent protest at a Chase branch in Cleveland, “this crisis will not end.” He’s right, and it won’t. 


Think About This Folks. This is Important.

Three disturbing trends in commercial banking

The recession officially ended in July 2009 (HAHAHAHA), and yet the speed and scope of the subsequent recovery have been disappointing (Shocked face here). Recent economic data have been encouraging (Bwahahaha), but there are three ominous trends in the consumer banking space that signal the waters ahead may be choppy. (This is where I say, It was April of last year when the news came out that the University of Texas decided to take physical delivery of $1 billion worth of gold.

What? Me worry? Ha!

By the way, that doesn’t mean the campus is chock full of gold bars — the university actually stuck the gold in an HSBC vault in New York City.) Kyle Bass of Hayman Capital Partners (the same guy who called the Global Financial meltdown and Greece’s impossible situation, and Europe’s as an extension), was the university board member behind the move, and on CNBC on Monday he explained why.

First, he reiterated that he’s still a gold fan: “The pattern is set, we’re going to continue to monetize fiscal deficits by expanding central bank balance sheets… I call it creating money out of thin air.”

I like it. Let’s all “monetize fiscal deficits”. That’s great! 

And, this is why he is gobbling up all the gold he can get his hands on:

1. No new banks were chartered in 2011

The Financial Times reported recently that not one new, or de novo, bank was created in 2011. (The FDIC actually lists three new bank charters for 2011 — the lowest number in more than 75 years — but they all involved bank takeovers of other failed banks.) What are some of the possible implications?

First, investors are clearly still gun-shy about banking. The dearth of new small banks is also a negative sign for small businesses generally, as they are particularly dependent on small banks for loans. Since most employment growth in the U.S. comes from small businesses that use external finance to grow into large businesses, a decline in these businesses’ access to loans could limit future employment growth as well.

The dominant narrative in 2011, like the 2010 version, was one of bank failures and distressed acquisitions. The FDIC reports that about a hundred banks failed and another hundred were absorbed this past year. But industry consolidation has been prevalent since the 1990s, as this graph reveals.

Overall, the number of banks declined by 15 percent in the past five years, to 7,357, while revenues decreased for the fourth consecutive year, to $737 billion. Although this is partly due to the Federal Reserve’s low-to-zero interest-rate policy, which reduces interest income, non-interest income also fell in 2011 for the second consecutive year.

2. The big are getting bigger

Today, about two-thirds of all U.S. commercial bank assets are at five banks: Wells Fargo, Bank of America, Citigroup, U.S. Bancorp and SunTrust Banks. A related and troubling trend is that much of the growth in lending in 2011 was also concentrated at the largest banks. The implication is that the “bigger are getting bigger” trajectory shows no signs of slowing down. And, by the way, Citi failed the latest capital reserve test by the Fed – just this week.

The graph below shows the trend in assets by bank size. Since 1993, big banks’ share of assets has skyrocketed while smaller banks’ share has been in a near-terminal decline.

In addition, the FDIC reports that banks with assets over $1 billion witnessed an increase in business lending in 2011, while firms under that threshold actually saw lending decline. David Reilly’s speculation on what may be fueling this trend is noteworthy:

The difference in lending may be due in part to the fact that bigger banks tend to have a client base that itself is bigger, more credit worthy and more export oriented. Such companies are likely seeing an earlier benefit from a firming of economic conditions in the U.S.

Meanwhile, bigger banks are going after more middle-market clients in a bid to win market share. And while the biggest banks suffered some of the worst blows during the crisis, they seem to have worked through problems at a somewhat faster clip…

In part, that may be because the biggest banks have large credit-card portfolios where losses are quickly flushed out. Smaller banks with mostly residential or commercial real-estate loan books tend to take longer to work their way through problems. Or it could be that bigger banks capitalized on the fact that they received the most government assistance during the crisis and continue to enjoy a cost-of-funding advantage. Um, you think?

According to the FDIC, big banks’ average funding costs are one-third lower. The average funding costs for banks with more than $10 billion in assets is 0.66 percent, compared with about 1 percent for banks with less than $1 billion in assets. Why is that the case? Well, the largest banks have about 20 percent less core capital as a share of total assets compared with smaller banks (8.7 percent of total assets relative to about 10.5 percent for smaller banks). Less equity and lower funding costs result in a return on equity (the key measure for bank profitability) for big banks that is almost double that of banks with less than $100 million in assets.

3. The government dominates consumer credit through big banks

A war is brewing between the private bank sector and the government over who exactly controls the allocation of consumer credit in this country. Consumer credit is probably too tight today. Really? Ya think? A popular refrain that often follows this observation is that if only the government would return some of the decision-making power to the private sector (i.e., let lenders decide who gets approved or denied for a loan), then there would be more lending and the economy would recover faster.

There is undoubtedly some truth to this argument, but the scary proposition is that many of the largest banks are perfectly happy to allow the government to maintain its broad guarantees on consumer loans, effectively absolving private banks from having to evaluate and manage credit risk while simultaneously ensuring that they receive a steady stream of fee income. If you just dropped in from Mars, you would assume immediately that the banks are all government agencies.

The consumer credit market comprises about $13 trillion in outstanding loans or debt. The mortgage market, or home loans, make up the overwhelming majority of this total (a little over $10 trillion). The other major categories are student loans, credit cards and auto loans (about $2.5 trillion). Today, the government has outstanding guarantees on close to 60 percent of all mortgage-related debt, or almost $6 trillion in aggregate. Moreover, practically every new home loan made today is backed by the government, so this percentage and aggregate dollar amount is only climbing. And for certain mortgages, the government is happy to offer special benefits to the banks or lenders that are responsible for the most loan volume.

The effect is that the government is determining the underwriting standards — who gets qualified for a loan and who doesn’t — and is bearing 100 percent of the credit risk on loan defaults, while private banks and lenders serve effectively as middlemen processing paperwork and helping to match consumers with the right government-guaranteed loan product.

The government has also increased its direct-lending activities over the past four years from $680 billion to nearly $1.4. trillion. Most of this growth in direct government lending has come from a quadrupling of student loans, from $98 billion to more than $425 billion. Today, the government now practically stands behind all new student lending.

With credit cards, private banks are still responsible for underwriting standards and default or credit risk, but Congress has introduced new command-and-control price caps on certain products. Auto loans remain relatively untouched, but the Fed did establish in the heat of the crisis the Term Asset-Backed Security Loan Facility (TALF). The TALF provided government financing for banks and other financial institutions to buy billions in auto loans. Plus, it is important to recognize that the Fed’s quantitative easing programs have been the biggest government lending program of all, as the Fed’s asset purchases have amounted to over $2 trillion in loans to the government-sponsored entities, or GSEs (i.e., Fannie and Freddie), and the U.S. Treasury.

What’s particularly disturbing about these three trends is how the underlying dynamics are interrelated and actually reinforcing one another. Small banks are being pushed to the side by big banks. The banks that are “too big to fail” are only getting larger and adding to their market share of consumer loans. But then a closer examination of who exactly is responsible for the losses when a consumer defaults on a loan (increasingly, it’s the taxpayer) reveals the true depths of the government’s influence, if not control, over consumer credit.

Snapping this vicious vortex is perhaps the greatest challenge that policymakers and the U.S. economy face in the coming years. A future where the provision of consumer credit is increasingly dictated by big banks and government bureaucrats is not consistent with the image that Americans like to project across the world, namely that the U.S. is a beacon or defender of private markets and capitalism. You think?

iSellerFINANCE intends to change all of that by offering peer-to-peer small business loans for the little guys that the big banks ignore. September 1st is the beginning of a whole new world of consumer and small business finance.


Q And A About The Mortgage Settlement And You.

Aid may take months, and eligibility depends on who owns your loan.

The record $26 billion foreclosure-abuse settlement that states and the Obama administration reached last week with five big banks is being billed as a program that will help more than 1 million U.S. homeowners.

However, the funds are being allocated to a number of different programs and it is not yet clear who will get relief — or when. Housing counselors said borrowers likely won’t begin receiving compensation or other forms of assistance until this summer at the earliest.

Here are answers to common questions about the program.

Q. There will be about $17 billion available to reduce mortgage-loan debt for struggling homeowners. How do I know whether I will be eligible for this principal-reduction assistance?

A. Borrowers who are delinquent or on the verge of delinquency and have loans that are on the books of one of the five participating banks are the likeliest to be eligible for help cutting the size of their mortgage, known as principal reduction. These borrowers must show they are behind on their payments.

Eligible homeowners must have loans serviced by the five big banks participating in the settlement: Bank of America (US:BAC), J.P. Morgan Chase & Co. (US:JPM), Citigroup Inc.(US:C), Wells Fargo & Co.(US:WFC) and Ally Financial Inc, the company formerly known as GMAC.

Borrowers who have loans owned by investors also may be eligible but to a lesser degree.

But homeowners whose mortgage loans are owned by Fannie Mae and Freddie Mac — the two government-seized mortgage giants that own about 50% of all U.S. mortgages — are not eligible to participate in the principal-reduction program. Neither are homeowners in Oklahoma since the state did not take part in the deal. Get more information from the NationalMortgageSettlement.com site.

You can check to see whether Fannie Mae or Freddie Mac owns your home loan at these links.Click here to see whether your home loan is owned by Fannie Mae.

Click here to see whether your home loan is owned by Freddie Mac.

Q. If I am behind on my mortgage payments, what should I do to find out whether I am eligible for any relief?

A. Regulators say that borrowers will be contacted by their mortgage servicer, a state local administrator or their state attorney general in coming months.

But troubled homeowners should also contact a U.S. Department of Housing and Urban Development certified housing counselor in their area to obtain free help in identifying whether they are eligible to receive relief on the amount they owe on their mortgage. Find a local HUD-approved housing counseling agency here.

Housing counselors and state attorneys general also suggest contacting your bank immediately to make sure they are aware of your grievances.

Q: If I am current on my mortgage payments but have little or no equity in my home, whom do I contact to see if I can receive assistance to refinance my loan at current low interest rates? Read: 30-year mortgage holds at record low.

A. If you’re in this situation, your mortgage servicer may contact you in coming months. But housing counselors also suggest that “underwater” borrowers — those who owe more than their home is worth — should contact their bank and local state attorney general’s office for more information.

Q. If my mortgage is serviced by a lender that is not one of the five participating in the settlement, can I participate?

A. The Justice Department and other regulators are currently in discussions with nine other mortgage servicers and say they hope to reach a settlement over problematic foreclosure practices in the coming weeks. Keep an eye out for statements from your local attorney general’s office to see if this deal is announced.

Q. Roughly $1.5 billion in funds is being allocated to borrowers who have lost their homes and experienced mortgage servicing abuse. Regulators estimate that borrowers could receive about $2,000 each if 750,000 people are deemed eligible. If I have lost my home to foreclosure and feel that I have experienced servicer abuse, how can I apply?

A. Borrowers who lost their homes between January 2008 and December 2011 can apply. In a few months, potentially eligible consumers should receive a notification from a settlement administrator or their state attorney general. The spokesman for Iowa Attorney General Tom Miller said consumers will probably fill out a fairly simple form that verifies certain facts, and they’ll have to attest that they were subjected to some form of servicing abuse.

Borrowers in any stage of foreclosure in 2009 or 2010 may also be eligible for compensation or some other remediation (such as getting your home back from bank inventory) as part of a separate regulatory enforcement action against a number of banks. Regulators say borrowers who have been foreclosed upon can apply and possibly receive help through both processes. So far, no borrower has received assistance through this approach, but regulators expect assistance to go out by the end of 2012. Learn more about this foreclosure review and request an application form here.

Q. Another $2.75 billion is being paid to states to fund legal aid, housing counselors and other programs. Can I receive help this way?

A. Money going to housing counselors and legal aid may help borrowers indirectly. But keep in mind that states have some leeway in how to use the funds.

For example, Ohio’s attorney general estimates that $97 million of funds going to the state will be used to conduct foreclosure prevention and neighborhood revitalization programs. However, Wisconsin and Missouri reportedly are planning to use a large part of their settlement funds to help balance their state budgets, rather than directly helping borrowers.

Hope this helps. 


The Watchdogs That Didn’t Bark, and a Fun Halloween Party.

New York foreclosure firm, Steven J. Baum, dressed up as homeless and decorated offices like foreclosed homes for Halloween, before November 2010 when they were shut down because of robo-signing, among other offenses.  NY State court judge called one foreclosure filing from the Baum firm “incredible, outrageous, ludicrous and disingenuous.”
Photos from a former employee: Two Steven J. Baum employees mocking homeowners who have been foreclosed on.
A “squatter” in Baum Estates – photo of the Halloween  party from former employee. Funny, right?

Four years after the banking system nearly collapsed from reckless mortgage lending, federal prosecutors have stayed on the sidelines, even as judges around the country are pointing fingers at possible wrongdoing.

The federal government, as has been widely noted, has pressed few criminal cases against major lenders or senior executives for the events that led to the meltdown of 2007. Finding hard evidence has proved difficult, the Justice Department has said.

The government also hasn’t brought any prosecutions for dubious foreclosure practices deployed since 2007 by big banks and other mortgage-servicing companies.

But this part of the financial system, a Reuters examination shows, is filled with potential leads:

Foreclosure-related case files in just one New York federal bankruptcy court, for example, hold at least a dozen mortgage documents known as promissory notes bearing evidence of recently forged signatures and illegal alterations, according to a judge’s rulings and records reviewed by Reuters. Similarly altered notes have appeared in courts around the country.

Banks in the past two years have foreclosed on the houses of thousands of active-duty U.S. soldiers who are legally eligible to have foreclosures halted. Refusing to grant foreclosure stays is a misdemeanor under federal law.

The U.S. Treasury confirmed in November that it is conducting a civil investigation of 4,500 such foreclosures. Attorneys representing service members estimate banks have foreclosed on up to 30,000 military personnel in potential violation of the law.

In Alabama, a federal bankruptcy judge ruled last month that Wells Fargo & Co. had filed at least 630 sworn affidavits containing false “facts,” including claims that homeowners were in arrears for amounts not yet due.

Wells Fargo “took the law into its own hands” and disregarded laws banning perjury, Judge Margaret A. Mahoney declared.

And in thousands of cases, documents required to transfer ownership of mortgages have been falsified. Lacking originals needed to foreclose, mortgage servicers drew up new ones, falsely signed by their own staff as employees of the original lenders – many of which no longer exist.

But the mortgage-foreclosure mess has yet to yield any federal prosecution against the big banks that are the major servicers of home loans.

UNPRECEDENTED FRAUD

Reuters has identified one pending federal criminal investigation into suspected improper foreclosure procedures. That inquiry has been under way since 2009.

The investigation focuses on a defunct subsidiary of Jacksonville, Florida-based Lender Processing Services, the nation’s largest subcontractor of mortgage servicing duties for banks.

People close to the investigation said indictments may come as early as the end of this month. Nationwide press reports had showed photos of what appeared to be obviously forged signatures on foreclosure affidavits.

The Justice Department doesn’t disclose pending investigations, making it impossible to say if other criminal inquiries are underway. Officials in state attorneys’ general offices and lawyers in foreclosure cases say they have seen no signs of any other federal criminal investigation.

“I think it’s difficult to find a fraud of this size on the U.S. court system in U.S. history,” said Raymond Brescia, a visiting professor at Yale Law School who has written articles analyzing the role of courts in the financial crisis. “I can’t think of one where you have literally tens of thousands of fraudulent documents filed in tens of thousands of cases.”

Spokesmen for the five largest servicers – Bank of America Corp., Wells Fargo & Co., JP Morgan Chase & Co, Citigroup Inc., and Ally Financial Group – declined to comment about the possibility of widespread fraud for this article.

Paul Leonard, spokesman for the Housing Policy Council, whose membership includes those banks, said any faults in foreclosure cases are being addressed under a civil settlement earlier this year with federal regulators.

FALSE STATEMENTS

Justice Department and Federal Bureau of Investigation officials say they have brought mortgage-fraud criminal cases through their “Operation Stolen Dreams.” None, however, were against big banks. All targeted small-scale operators who allegedly defrauded banks with forged mortgage applications or took advantage of homeowners by falsely promising arrangements to get them out of default and then pocketing their money.

Justice Department spokeswoman Adora Andy declined to comment on the absence of prosecutions for foreclosure practices by big banks. She said in a statement: “The Department of Justice has been and will continue to aggressively investigate financial fraud wherever it occurs, including at all levels of the mortgage industry and, when we find evidence of a crime, we will not hesitate to pursue it.”

Some judges have accused banks of falsely stating in court that they are working on loan modifications for homeowners in default.

In a November 30 court hearing, not previously reported, a federal bankruptcy judge in New York accused Bank of America of falsely telling courts and the public that it was working to renegotiate loans.

“Bank of America issues constant press releases about how it is responsive to their borrowers on these issues. They are not, period,” said Judge Robert Drain, in a case involving homeowner Richard Tomasulo, a pharmacist from Crompond, New York. Drain said Bank of America had been telling the court since January that it was working to modify Tomasulo’s mortgage, but hadn’t done so.

“Whoever is in charge of this program and their supervisor, who should be following it, should be fired” because “they are frankly incompetent.”

Bank of America spokeswoman Jumana Bauwens said the bank has completed “nearly one million” modifications since 2008. The U.S. Treasury in 2011 suspended loan modification incentive payments to the bank because it was “seriously deficient” in responding to requests for modifications.

CHEATERS AND LIARS

Foreclosure fraud came to light in September 2010, with evidence that employees of Ally Financial Corp. had committed “robo-signing,” in which low-level workers signed and swore to the facts in thousands of affidavits they hadn’t read or checked.

The affidavits were notarized outside the signers’ presence, in apparent violation of state and federal criminal laws.

Since then, mounting evidence of possible foreclosure fraud has convinced judges and state regulators that servicers have harmed homeowners and the investors who bought mortgage-backed securities.

A unit of the Justice Department that oversees bankruptcy court cases, the U.S. Trustees Program, said in its 2010 annual report that there were “pervasive and longstanding problems regarding mortgage loan servicing,” which “are not merely ‘technical’ but cause real harm to homeowners in bankruptcy.”

Banks, the Trustees Program says, have falsified affidavits by claiming homeowners owe fees for services never rendered and by overstating how much owners are behind on payments.

Former federal prosecutor Daniel Richman, a professor of criminal law at Columbia University Law School, says a central question is who prosecutors would target in criminal investigations. Richman said it would be easy but not worthwhile to charge large numbers of rank-and-file workers who, directed by supervisors, falsely churned out affidavits.

He said criminal investigations would be warranted, but harder to bring, “if there are particular individuals who lie at the heart of this conduct in a very significant way.”

In October 2010, members of Congress pressed the Justice Department to investigate. Attorney General Eric Holder said investigations were best left to the states, with help from the Justice Department.

The Office of the Comptroller of the Currency, the top bank regulator, quickly negotiated settlements with the 14 largest servicers, requiring changes in practices and “remediation” for harmed homeowners. That settlement allows the banks to choose their own contractors to determine who was harmed and by how much.

Lawmakers and homeowner advocates have criticized the arrangement, contending that it will let the banks avoid making all wronged homeowners whole, because the contractors are paid by and answer to the banks.

Since then, the department’s civil division has worked with a shaky coalition of all 50 states, which have been seeking a civil settlement with five banks that are the largest loan servicers. The negotiations center on requiring them to pay $20 billion or more in penalties, only some of which would go to compensate wronged homeowners.

STATES TAKE ACTION

Federal law enforcement has been noticeably absent, even in areas hardest hit by the crisis, such as Las Vegas.

In 2010 the FBI’s Las Vegas office shut down its mortgage fraud task force, which had focused on small-scale swindlers.

Tim Gallagher, chief of the FBI’s financial crimes section, said that the Las Vegas office had asked to transfer agents to other duties.

Impatient with the lack of federal prosecution, states including New York, Massachusetts, Delaware and California have launched their own investigations of the banks.

In November, it became the first state to file criminal charges. The state attorney general obtained a 606-count indictment against two California-based executives of Lender Processing Services.

It accuses the executives of paying Nevada notaries to forge the pair’s signatures and falsely notarize them on notices of default, documents Nevada requires in foreclosure actions. State officials said more indictments are expected.

In an interview, John Kelleher, Nevada’s chief deputy attorney general, said the investigation began in response to citizen complaints.

“We were concerned and then shocked at the sheer number of fraudulent documents we were finding that had been filed with the county recorder,” Kelleher said.

Investigators found “tens of thousands” of false records filed on behalf of big mortgage servicers, he said.

The two executives have pleaded not guilty. In a press release, the company said: “LPS acknowledges the signing procedures on some of these documents were flawed; however, the company also believes these documents were properly authorized and their recording did not result in a wrongful foreclosure.”

BACK HOME IN NEW YORK

The U.S. Attorney’s Office in Manhattan is the federal prosecutors’ office that traditionally has filed the most cases against top banks and financiers. But it hasn’t brought any foreclosure-related criminal cases involving Wall Street’s biggest financial houses or the law firms that represent them.

To date the only step it has taken publicly was an October 2011 civil settlement with New York State’s largest foreclosure law firm.

The Steven J. Baum P.C. law firm, based near Buffalo, New York, in recent years filed approximately 40 per cent of all foreclosures in New York State, on behalf of banks and other mortgage servicers. Court records show that the firm angered state court judges for alleged false statements and filing suspect documents.

Arthur Schack, a state court judge in Brooklyn, in a 2010 ruling said that pleadings by the Baum firm on behalf of HSBC Bank, a unit of London-based HSBC Holdings, in a foreclosure case were “so incredible, outrageous, ludicrous and disingenuous that they should have been authorized by the late Rod Serling, creator of the famous science-fiction television series, The Twilight Zone.”

Another state judge that year imposed $5,000 in sanctions and ordered the firm to pay $14,500 in attorneys’ fees, ruling that “misrepresentation of the material statements here was outrageous.”

But the U.S. Attorney’s office in Manhattan filed no criminal charges against the Baum firm. Instead, it signed a settlement with Baum ending an inquiry “relating to foreclosure practices.” The agreement made no allegations of wrongdoing, but required the firm to improve its foreclosure practices.

Baum agreed to pay a $2 million civil penalty, but didn’t admit wrongdoing.

The law firm said it would shut down after New York Times columnist Joe Nocera in November published photographs of a 2010 Baum firm Halloween party in which employees dressed up as homeless people. Another showed part of Baum’s office decorated to look like a row of foreclosed houses.

“The settlement between the Manhattan U.S. Attorney’s Office and the Steven J. Baum Law Firm resulted in immediate and comprehensive reforms of the firm’s business practices,” said Ellen Davis, spokeswoman for the Manhattan U.S. Attorney’s office.

Earl Wells III, a spokesman for Baum, said the lawyer wouldn’t comment because “he’s laying low right now.”

An HSBC spokesman said: “We are working closely with the regulators to address any matters raised regarding” the bank’s foreclosure practices.

BROKEN PROMISES

The most serious potential foreclosure violations involve falsified mortgage promissory notes, the documents homeowners sign vowing to repay mortgage loans. Courts uniformly have ruled that unless a creditor legally owns the promissory note, it has no legal right to foreclose. For each mortgage there is only one promissory note.

Bankruptcy court records reviewed by Reuters show that at least a dozen radically different documents purporting to be the authentic promissory note have turned up in foreclosure cases involving six different properties in the federal bankruptcy court for the Southern District of New York.

In one, Wells Fargo is battling to foreclose on the Bronx home of Tindala Mims, a single mother who works as an ambulance driver. In September 2010, Wells Fargo filed a promissory note bearing a signed stamp showing that the note belonged to defunct Washington Mutual Bank, not Wells Fargo. The judge threw out the case.

In a second attempt, the court was given a different version of the note. But inspection showed physical alterations. A variety of marks on the original were missing or seemed obviously altered on the second. And the second version had a stamped endorsement, missing on the first, that appeared to give Wells Fargo the right to foreclose.

The judge threw out the second attempt too. Wells Fargo is trying a third time. It declined to comment on the case.

Linda Tirelli, Mims’ lawyer, in October sued Wells Fargo, alleging “fabrication of documents.”

“It seems to me that Washington is deathly afraid of the banking industry,” Tirelli said. “If you’re talking about filing false documents and filing false notarizations, do you really think that the U.S. Attorney would find it too difficult to prosecute?”

The office of Attorney Preet Bharara in Manhattan has routinely brought charges involving forgery and filing false documents against smaller targets.

In April, the FBI arrested seven employees of the USA Beauty School in Manhattan. Bharara’s office alleged that the seven suspects had forged documents such as high school diplomas, attendance records and applications for financial aid for students taking cosmetology classes.

In August, Bharara’s office filed felony charges against a sports-memorabilia company’s CEO, accusing him of auctioning jerseys falsely advertised as “game used” by Major League Baseball players.

In a press conference, a U.S. Postal Inspection Service official said prosecution was important because “victims felt that they had a piece of history only to be defrauded and left with a feeling of heartbreak.”

Given the record of Bharara’s office, and those of his fellow U.S. Attorneys around the country, to aggressively pursue violations both big and small, the absence of cases involving the foreclosure fiasco seems to stand out.

“Why there hasn’t been more robust prosecution is a mystery,” said Brescia, the visiting professor at Yale.


So, Not Only Does the Mortgage Settlement Cost the Banks Nothing, but

Some States Are Using Mortgage Deal Funds To Close Budget Gaps. Who Gets Screwed? Who ALWAYS Gets Screwed?

Well, that was fast.

Two states have already announced that they won’t be using all of their share of the $25 billion allocated in Thursday’s historic foreclosure settlement to pay its intended recipients — the homeowners and borrowers who saw the housing market collapse beneath their feet.

Instead, in some areas, a share of those dollars is likely to be diverted to state budgets, in a bid to offset some of the massive deficits that states have been struggling with since the economic downturn, according to reports.

In Wisconsin, Governor Scott Walker and state Attorney General J.B. Van Hollen have announced plans to use $25.6 million of the settlement money — about 18 percent of the $140 million Wisconsin will get in total — to plug holes in the state’s budget, according to the Milwaukee Journal Sentinel. As the MJS notes, this is a reversal of Walker’s previous opposition to using legal settlements to close budget gaps.

And, in a bombshell announcement, investigators charged Walker appointees Tim Russell and Kevin Kavanaugh with embezzling $60,000 intended for a veterans support organization called Operation Freedom.

(Russell’s attorney, Michael Maistelman, had no comment.) The staffers used the money to pay for vacations to Hawaii and the Caribbean, wedding parties, and pro-Walker campaign websites. In a strange twist, Russell’s boyfriend, Brian Pierick,

was also caught by John Doe investigators and charged  for the crime of sending sexually-explicit text messages to a then-17-year-old high school student, among other things. I guess he got confused about which holes to plug. His attorney did not respond to a request for comment. What a bunch of freaking creeps.

Meanwhile, in Missouri, state Attorney General Chris Koster has said that he plans to put $40 million of Missouri’s settlement money — about 20 percent of the total $196 million — into the general state fund, apparently in response to Governor Jay Nixon‘s call for a stronger college and university budget, Stateline reported. I don’t understand how we can structure such a deal without conditions on its use, but we do it every time; the TARP bailout, the AIG save, the Banking bailout, and now this. One can only conclude that this whole affair is a very private club and only bankers, private equity, hedge funds and politicians can belong.

In the wake of Missouri and Wisconsin’s announcements to use the settlement funds for purposes other than directly assisting borrowers — and with similar announcements possibly forthcoming from other states — critics have begun comparing Thursday’s deal to the 1998 tobacco settlement that saw some of the country’s largest tobacco companies agree to pay $246 billion over the next 25 years to fund public-health initiatives.

Much of that money has since been spent on other things, according to the Campaign for Tobacco-Free Kids, which estimates that states will receive $25.6 billion from the tobacco settlement this year, but only use 1.8 percent of it to combat tobacco use.

If the news that some of the money from the foreclosure settlement won’t end up in borrowers’ hands is disappointing to some, it won’t be the first time this week that the deal has let someone down.

While the settlement involves five of the country’s largest banks — Citigroup, JPMorgan Chase, Ally Financial, Wells Fargo and Bank of America — and an amount of money that has been called one of the largest mortgage settlements in history, most borrowers stand to realize practical benefits that are marginal at best.

Some 1 million homeowners will receive material mortgage relief that may help them stave off a default, but another 775,000 borrowers who have lost their homes to foreclosure will receive payments of no more than $2,000.

And the settlement excludes mortgages owned by Fannie Mae and Freddie Mac, the massive mortgage agencies currently in government conservatorship, which means about half the country’s mortgages aren’t covered at all by the deal. So, its like, huh … what was THAT about?


The Mortgage Settlement is Great — for Politicians and Banks!

The settlement mostly requires mortgage lenders and servicers to comply with what I would have thought was already the law, which prohibits, you know, criminal fraud.

Atty. Gen. Kamala D. HarrisCalifornia Atty. Gen. Kamala D. Harris retains the right to pursue the banks under state fraud laws. But the settlement narrows the breadth of a promising Massachusetts investigation and may entirely shut down cases brought against BofA by the Arizona and Nevada attorneys general. (Bob Chamberlin, Los Angeles Times)
I hate a parade. And the parade of rosy self-congratulation staged last week by the creators of the $25-billion mortgage fraud settlement with five big banks is the kind of parade I really hate.There certainly are some big winners in the deal, which has the approval of 49 of the 50 state attorneys general. Start with its godfathers. President Obama took to the podium a couple of hours after the deal’s announcement to declare that it will “speed relief to the hardest-hit homeowners.”

California Atty. Gen. Kamala D. Harris went before the cameras soon after that, taking credit for “a tremendous victory for California,” which has been perhaps the hardest-hit state in the foreclosure crisis.

Then there are the banks. The signatories to the deal are Bank of AmericaCitibankWells Fargo & Co., JPMorgan Chase and Ally Financial (formerly GMAC), which handle payments on more than half the nation’s outstanding 27 million home loans and therefore have been at the center of the servicing and foreclosure abuses the settlement is supposed to end.

        

If you don’t listen too closely, it sounds as if they’re putting up the $25 billion. Not so. The only cold cash the banks are paying is a combined $5 billion, including $1.5 billion to compensate borrowers whose homes were foreclosed on from 2008 through the end of last year, with the rest going to the federal and state governments to pay for regulatory programs.

Most of the balance is in mortgage relief for stressed or underwater mortgage holders, including principal reductions, refinancings and other modifications.

How much of this will translate into an outlay of cash by the five banks? Not much, if any.

For one thing, even the government acknowledges that a lender typically benefits when ways are found to keep a home out of foreclosure — a lender loses an average $60,000 on every foreclosure, according to figures the federal government disclosed in connection with the settlement announcement. It’s been institutional resistance and legal entanglements, not economics, that have kept more modifications from going forward.

Many of the loans destined to be modified under the settlement aren’t even owned by the banks, but rather by investors — the banks just collect the checks.

Consequently, as mortgage expert Adam Levitin of Georgetown Law School observes, most of the settlement “is being financed on the dime of MBS [mortgage-backed securities] investors such as pension funds, 401(k) plans, insurance companies and the like — parties that did not themselves engage in any of the wrongdoing covered by the settlement.”

What about homeowners? They don’t get much, especially in relation to the scale of the housing crisis. More than 2 million owners have lost their homes to foreclosure during the last four years; this deal will provide 750,000 with a payment of $2,000 each.

Some 11 million homeowners are underwater by about $700 billion combined, or an average of nearly $65,000 each. In a transport of optimism, federal officials are projecting that this deal will help 2 million of them, to the tune of perhaps $20,000 each. By the way, loans owned by the government-sponsored firms Fannie Mae and Freddie Mac aren’t eligible for this relief. Since they own or control the majority of all outstanding mortgages, that’s a rather large black hole.

Supposedly a big part of the deal is the implementation of new foreclosure standards to end the abuses that made the deal necessary. These standards require banks seeking to foreclose henceforth to submit sworn affidavits that are accurate about the amounts owed and the legal right of the servicer to proceed, and require that the bank officers who sign them to actually examine the documents they swear to have examined.

In other words, no more “robo-signing.” Assertions the banks make in court will have to be “accurate.” Banks will have to give borrowers complete and accurate information about their loans, suspend foreclosure proceedings once they start working on a loan modification, apply mortgage payments promptly, keep accurate loan records and communicate effectively with borrowers.

I believe the technical term for all this is “big whoop.” The provisions mostly require mortgage lenders and servicers to comply with what I would have thought was already the law, which prohibits, you know, criminal fraud. The rest is pretty much out of the best-practices manual of customer service, which benefits both the customer and the institution.

What the standards do accomplish is to expose how sad our enforcement of the law has been up to now, and how hard it will be to enforce it in the future if this is the best we can do in the face of manifestly illegal behavior. The lesson is: Break the law, and the full weight of the state and federal governments will come down on your head to make you agree not to break the law — in the future.

It may not be long before the euphoria over the settlement evaporates in the realization that the banks that made a travesty of the mortgage market are still getting a pass — not only on their cupidity in making loans to unqualified buyers, but in magnifying their cupidity through forgery, lies and the other building blocks of foreclosure fraud.

In the words of business consultant Susan Webber, who blogs expertly on financial matters under the pen name Yves Smith, We’ve now set a price for forgeries and fabricating documents. It’s $2,000 per loan.” She observes, quite properly, that the payoff is a minuscule fraction of the costs these practices have imposed on borrowers, the court system and the economy.

The settlement, meanwhile, provides cover for other stealth bailouts. On Thursday, the day of the big parade, the U.S. Office of the Controller of the Currency quietly settled claims against BofA, Wells Fargo, Citibank and JPMorgan Chase related to cease-and-desist orders the agency issued last year over the banks’ crooked mortgage servicing and foreclosure activities.

The agency says it settled those claims for $394 million. The actual figure is zero. That’s because the agency won’t ask for any of the money as long as the banks meet their obligations under the mortgage settlement. This is the kind of fun with math that helped get us into the housing crisis in the first place.

The settlement’s proponents have praised it for preserving the right of prosecutors to continue their investigations into the banks’ misbehavior; California’s Harris crowed that she retains the right to pursue the banks under state fraud laws. But it also narrows the breadth of a promising Massachusetts investigation and may entirely shut down cases brought against BofA by the Arizona and Nevada attorneys general.

Most troubling, compliance with the settlement terms will be overseen by an independent monitor who must rely on the banks’ own figures. If we know anything about these banks, it’s that they’ve moved heaven and earth to evade their past promises to help troubled homeowners. Time and again their loan relief programs have fallen short of their promises. Why should this time be different, when the consequence of their past misbehavior is, when you come down to it, a slap on the wrist?

Prosecutors coast to coast had the mortgage industry dead to rights this time around. That’s why the banks came to the table. The states and the feds were in a position to achieve real homeowner relief and a lasting change in the way Wall Street banks do business. But that fading sound you hear? That’s the parade passing by, leaving Main Street behind.