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Lawsuits against banks looking as convoluted as their financial 'products' that fueled the whole damn thing

Hard to know which legal action to 'cheer for' when homeownership caught in crossfire among biggest lenders, FHFA, and the divided Attorneys General working on the Robo-Signing settlement


Toward the end of the month in August we had a run of stories about the Mortgage and Foreclosure Scandal that originated on Wall Street and was integral to the financial crisis now known as The Great Recession:

Rentals surge as homeowners thinned to mid-60s levels

One effect of the crisis is that we now have fewer homeowners--and not merely since the peak of ownership before the financial meltdown began. No, no: The percentage of homeowners now is at "the lowest level since the Census Bureau started keeping quarterly records back in 1965 (before that, it recorded home ownership rates once a decade)," according to an Aug. 5 CNN report. This reversal of fortune, of course, contrasts not only with historically low home prices but also with very low mortgage rates.

Lingering effects of recession a waking nightmare for many

Another residual is the legal aftershock. If the epicenter of the financial crisis was the Fall 2008 Econoquake,  the consequent lawsuits, investigations, partial revelations and ongoing mysterious confusion are surely the rippling, cascading after-effects of political tectonics that most of us can feel (like too-strong bass-notes jangling out guts at an intersection we no longer recognize and somehow equate to that instant when we awake in sweat-drenched-apprehension-of-how-to pay-the-bills), but can not quite locate...because it's so eerily, nightmare-vivid that most of us can not believe that what we're seeing in our waking moments is true.

Grasping for true cost of a settlement

As we discussed in the aforementioned, late-August posts, one of those aftershocks has been the 50 States' Convergence of Attorneys General seeking some sort of settlement with the banksters. The number $20 billion has been on the table, but as we referenced in that particular series (via Matt Taibbi, who terms it such an "absurdly small a number," when compared to only one state's pension loss), that high-sounding figure really doesn't seem like much when the total, true losses are reported. And, truth to tell, we're still in the process of recognizing that the true cost may be revealed only in years to come--if ever.

How many hopes staked to AGs settlement talks?

However, from the perspective of those facing bankruptcy, or trying to save their homes by filing for bankruptcy protection, it can be tough to ignore the promise, the hope, the chance-to-lay-down-and-dream that all this Goes Away...and may somehow be tucked into bed,  lulled to sleep by the Candy-Colored-Wrapper promised on every state's AG Web site--the go-to-guys, our ever-stalwarts, the Attorneys General.

A great divide among the states' Attorneys General

Except...uh-oh--the AGs ain't exactly in agreement. Some agree with Iowa AG Tom Miller, that is, that he was justified in booting NY AG Eric Schneiderman from the exec-level committee that's negotiating with the big mortgage-lending banks. A few others agree with Schneiderman, that letting them off with a wrist-slap of $20 billion and a promise of no further litigation is far too lenient.

Fed housing boss files its own lawsuit

And now comes the lawsuit by the agency that oversees Fannie Mae and Freddie Mac, the Federal Housing Finance Agency (FHFA). From a Sept. 2 account at CNBC:
A U.S. regulator sued a number of major banks Friday over losses on more than $41 billion in subprime mortgage bonds, which may hamper a broader government mortgage settlement with banks.

The lawsuits by the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, came as a surprise to the market and weighed on bank shares. The lawsuits could add billions of dollars to the banks' potential costs at perhaps the worst possible time for the industry.

The FHFA accused major banks, including Bank of America [BAC  7.4782  0.4882  (+6.98%)   ], its Merrill Lynch unit, Barclays [BCS  10.44  0.55  (+5.56%)   ], Citigroup [C  29.11  1.41  (+5.09%)   ] and Nomura Holdings of selling bonds backed by mortgages that should have never been packaged into securities.

(You can see a slideshow of the 17 banks being sued at Forbes.com, including brief comments about each institution.)

Who wins if the banks lose? Who, beside banks, win if the banks win?

I knew the FHFA might file suit, then saw the news alert on Friday that it had been filed. Over the weekend, I thought about it quite a bit, wondering if it might really affect the settlement with the AGs, and if so, how much? In other words, might the FHFA lawsuit skuttle deals that would help distressed homeowners? It's a conundrum, for sure: The banksters ought to face the full weight of the law;  after all, they sold everyone down the river, homeowners and investors alike, then got bailed out with tax dollars and then turned around started kicking taxpayers out of their homes, often with shady paperwork, underhanded tactics and maybe without even the legal right to do so. True, some investors have gotten money back, but only after beating the banks about the heads and shoulders with the business end of a lawsuit.

What about homeowners tossed out earlier?

On the other hand, if the FHFA lawsuit stymies the settlement with the AGs, is it worth the price to further injure homeowners who might get relief from the settlement? On the other other hand, is it worth it letting the banks off easy in order to get relief for some homeowners, after millions of others have already lost their homes? What about them--is there anything in the settlement talks that would provide redress homeowners wrongfully foreclosed against before the Robo-Signing affair broke into nationwide headlines?

Coming soon: We follow up on the lawsuits, and these questions.

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