What We’re Reading: $8.5 Billion, And A Lot Of Problems

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A lock hangs from the front door of a foreclosed home.

Idaho’s housing market underwent a dramatic turnaround in 2012.  The state’s foreclosure rate began to come down.  Single family homes began to make up some of their staggering loss in value.  Now, Boise is showing stronger signs of recovery than most metro areas, according to the Brookings Institution.

But 2011 — when Idaho posted one of the highest foreclosure rates in the nation — is not yet a distant memory.  That’s part of why we’ve kept a close eye on this week’s news of an $8.5 billion foreclosure settlement between banks and federal regulators. 

The settlement drew immediate criticism.  Since it was announced Monday, it’s been called a “slap on the wrist” for the 10 banks involved.  Homeowner advocates have said the $3.3 billion in cash payments to be distributed among 3.8 million borrowers is “wholly inadequate.” And The Wall Street Journal has explained why the deal is a win for banks: settling early in 2013 allows them to put the costs on their fourth-quarter financial reports.  That gives them a clean slate for this year.

When certain events occur after the end of a fiscal quarter or year but before that period’s earnings have been disclosed, U.S. accounting rules require companies to count the impact of those events in that period’s results.

That means the banks’ 2013 results will be free of those big obligations, giving major lenders better 2013 results to present to investors at a time when sentiment on bank stocks is turning more positive. – The Wall Street Journal

Today, a report in The New York Times details the many problems with the agreement.  It’s a valuable read.  Here’s a sliver of the full piece:

Because they have no idea how many borrowers were harmed, the regulators are spreading the cash payments over all 3.8 million borrowers — whether there was evidence of harm or not. As a result, many victims of foreclosure abuses like bungled loan modifications, deficient paperwork, excessive fees and wrongful evictions will most likely get less money. – The New York Times

The deal announced Monday is distinct from the $25 billion mortgage settlement reached nearly a year ago.  Idaho’s share of that settlement was about $13.5 million dollars.  As StateImpact has reported, most of that money went into Idaho’s general fund, not toward housing programs.