Out of Control Policy Blog

How Justice Broke Down in the Mortgage Settlement

Following on the commentary we published last week calling out the politically oriented nature of the mortgage settlement between state attorneys general and the top five mortgage servicers, I had an op-ed published by RealClearMarkets this morning that highlights the unjust nature of the settlement. And any judicial agreement that doesn't pass the "justice" test should be seriously reconsidered:

...rather than helping the housing market, all the attorneys general wound up accomplishing was pushing aside justice in lieu of political grandstanding.

The mortgage settlement lacked what should have been basic procedure for investigating claims of misconduct at financial firms. There should have been evidence collected, executives deposed, the facts presented, and restitution paid to those who were wronged.

But this did not happen in any meaningful sense - only a "small number" of cases were found where robo-signed foreclosure notices were served on households making their payments. And had the attorneys generals' case against mortgage services been taken to court, there would have been little evidence to persuade a judge or jury that $26 billion payout was due. [...]

Since the settlement has yet to be approved by a judge, it is still possible this "landmark" deal could be dismissed. The arbitrary $2.5 billion slush fund state attorneys general got in the deal should be grounds enough for a judge to reject this (ala Jed "Dread" Rakoff). The unjust treatment of mortgage investors being linked to a non-germane robo-signing case is even more substantial grounds for refusal.

See the whole commentary here.

Anthony Randazzo is Director of Economic Research


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