As we approach the deadline to file a lawsuit against the “big” banks for their alleged fraudulent behavior and activity, with regards to their involvement in the housing market crash, we are starting to see a new round of promises for retribution from government “heads” across the country; but are the promises sincere or merely political rhetoric being spread as we move into election season?
In the interest of full disclosure I have to admit that I am not the biggest Obama fan. I believe that he hands out promises like candy at a school yard, and that his Home Affordable Modification Program (HAMP) is little more than a band-aid trying to cover a bullet wound: In the best case scenario it slows the bleeding, in the worst it gives distressed homeowners a false sense of security and tricks them into making a few more payments to the bank before the inevitable happens.
This being said I intend to write this article with as much objectivity as possible.
Yesterday, October 2, 2012, the New York Attorney General (Eric Schneiderman) stated in a press conference that “There are more cases to come” and that “We’re [they’re] investigating misconduct of folks that brought about the crash of 2008.”
These statements came the day after the Attorney General filed a lawsuit against Bear Stearns (now owned by JP Morgan Chase).
While this may sound like good news for homeowners facing foreclosure there are several important facts that need to be discussed:
1. This lawsuit, while being talked about and publicized to no end, is really about mortgage backed securities and the investors who bought into them.
For the uninitiated, it works like this: In the years leading up to the burst one went to the bank, showed no paperwork, sneezed on a piece of paper, and was given a mortgage for a property they couldn’t really afford. Then the higher-ups at the bank took that very risky mortgage, packaged it with some less risky mortgages and sold the whole package off to investors in pieces. Because they bundled the risky mortgages with less risky mortgages they were able to sell them at a premium. This blatant deception of investors constitutes fraud (if the banks in fact knew what they were selling was more risky than what they sold it as, if they didn’t know, it would be some form of gross negligence most likely).
So this lawsuit that has just been announced is not to seek retribution for the homeowners who were taken advantage of, at the origination of the bad mortgage, but for the investors who were tricked into buying sand when they were told it was gold.
2. The statute of limitations to prosecute fraud is five years.
Most of the homeowners who have defaulted and are in serious need of help originated their mortgages prior to 2007; therefore as soon as January 1, 2013 rolls around these banks are off the hook and litigation ceases to be a real remedy.
3. The timing of this announcement is quite uncanny.
We are winding up for the 2012 presidential election next month… why has there not been more progress on this prior to now? I know the “task force” (formally called President Obama’s Residential Mortgage Backed Securities Working Group) hasn’t been too busy, as this is their FIRST lawsuit since inception!
So, what does this mean to homeowners? Well, unfortunately I don’t think this has any positive implications for homeowners in need of help; and I am not just saying that because this lawsuit isn’t about the origination of the mortgages. I am saying this because the lawsuit is directed at investors, homeowners aren’t even on the radar here.
Could it be that the Obama “camp” saw an opportunity to increase their favor with the 1%, and subtly lead them to believe that through reelection they would see some justice?
Only time will tell! One thing is certain: If the government doesn’t go full throttle on some lawsuits in the next three months homeowners and investors can both kiss their dreams of help goodbye!