Mortgage Settlement BS: Banks Don’t Have to Admit Guilt

This should not come as a surprise, but it is very frustrating: in settling the robosigning case, all five banks are neither accepting nor denying guilt. It took more than a month from the data the settlement was announced, but the complaint and settlement agreements were finally filed this week. You only have to get through first page list of plaintiffs to find these early notes:

WHEREAS, Defendant, by entering into this Consent Judgment, does not admit the allegations of the Complaint other than those facts deemed necessary to the jurisdiction of this Court; WHEREAS, the intention of the United States and the States in effecting this settlement is to remediate harms allegedly resulting from the alleged unlawful conduct of the Defendant…

Oh joy. I pulled this quote from the Bank of America settlement, but you’ll find the exact same language in the agreements with the other four banks. It is insulting.

Now, to be clear—the banks have been largely extorted in this settlement. The crime they committed (and that they should admit to) are largely paperwork processing errors. As far as the evidence has been presented, that paperwork essentially just led to people being evicted from their homes faster than the back log of paper would have allowed, but not faster than they legally should have been. There have only been a handful of cases that have come to light where robosigning specifically led to a foreclosure that would not have otherwise happened.

As a result this settlement is the worst of all possibilities—it levies a fine on the banks that does not match the crime (how did they land on $2,000 a the restitution for early paperwork processing? and why do borrowers today get modified mortgages for robosigning of borrowers a few years ago?), it ignores going after the major crimes (some people did get kicked out of their houses, but this settlement doesn’t address that), and it lets the banks slide on actually admitting robosigning guilt.

The pattern of regulators settling with accused financial institutions but allowing them to neither admit nor deny guilt has come under some scrutiny lately. Last year, James Groth wrote a blog posts expressing frustration at the practice. And in November, a federal Judge ruled a deal reached between the SEC and Citigroup was “neither fair, nor reasonable, nor adequate, nor in the public interest.” However, that ruling was recently chastised by an appeals court, leaving open the question of whether Judges will take a stronger stance against these types of settlements.

The “neither admit nor deny” portion of the mortgage settlement is hardly its gravest error. In fact, the mortgage settlement is so bad that this probably wouldn’t even crack top 10 list of problems. But it will be interesting to see if the US District Court of DC judge highlights this aspect of the settlement and suggests that the banks be forced to admit robosigning guilt.