Even if Foreclosure Related Documents are Faulty the Borrowers

Although uncertainty persists there are preliminary indications that the settlement amount could be around $25 billion; $5 billion will be cash and around $20 billion set aside for refinancing and lowering principal.

The cash would reimburse the regulators (federal and state) to help the troubled borrowers and to also “help out” those who have been foreclosed upon from 2008 September by giving them cash payment (one time) of $1,500. It is a pittance but at least some sort of gesture. If this deal is finalized then it can be indubitably be said that none will be happy.

The amount is too little considering the volume of wrongdoings. The settlement amount would be shared by fourteen banks and hence the load for each would be negligible. In return there is the chance that the banks would be released from facing further legal action. The measure would have done little to rectify the defect in the system – the problem being not only bad mortgages but the bad procedure involved.

The opposite camp argues that writing down the principal would encourage those that are current on their mortgages to default, hoping to share the luck. Documentation will pose problems. Punitive measures do not always work.

In short the argument is that the homeowners should very well be responsible for their irresponsible actions despite the faulty paperwork. The solution pushed along by the politicians will create an atmosphere not conducive to future lending.

What should be the solution? Some sort of settlement is required and this should happen quickly. Any kind of relief to genuine foreclosure victims is imperative considering the wobbly economy and especially the housing sector. But how can this be reached without treading on the toes of all?

The attorneys general of five of the states have withdrawn from the negotiations and are pursuing their own line of action against the erring banks. The attorneys general include Delaware’s Beau Biden and California’s Kamala Harris.

Recently Biden has filed a lawsuit against MERS. The latter was set up by the mega banks as well as Fannie Mae and Freddie Mac during the 90’s to make transfer of mortgages and securitization easier for the banks. In suit MERS is charged with deceptive operations. It was not a matter of persuading borrowers to take risky loans but for setting up a process that gravely hampered the borrowers from following up their rights.