As Obama administration officials pushed Monday toward finalizing a deal with the nation’s largest banks over widespread foreclosure abuses, they encountered a fresh wave of criticism from a familiar source: Liberal activists and consumer advocates insisting that the president is settling too soon, for too little.
“We’re talking about not much more than a slap on the wrist,” Sen. Sherrod Brown (D-Ohio) said of the multibillion-dollar settlement, which has been under negotiation for more than a year.
“The big Wall Street banks have still never been held accountable,” said Justin Ruben, executive director of MoveOn.org, who urged President Obama to order a full investigation into the banks’ practices before agreeing to any deal.
Those frustrations underscore a tension that has played out repeatedly between Obama and liberal activists who traditionally have supported him. Whether forging deals with Republicans over tax cuts or deciding whom to nominate to head the new consumer watchdog bureau, the president has faced complaints from left-leaning groups that he compromises too much or acts too timidly.
Those complaints surfaced again Monday as U.S. Department of Housing and Urban Development Secretary Shaun Donovan, top Justice Department official Tom Perrelli and Iowa Attorney General Tom Miller gathered in Chicago to brief Democratic state attorneys general on the outlines of the agreement and to shore up support. Protesters showed up. Impassioned news releases filled reporters’ inboxes. A conference call with lawmakers and activists was held, urging more investigation and a bigger settlement.
Federal and state officials have been working on the deal since late 2010, when news of widespread foreclosure problems — from flawed or fraudulent paperwork to questions about improper or incomplete loan transfers — spurred a national uproar and caused many banks to temporarily halt foreclosures.
The settlement, according to people involved, will include up to $25 billion in penalties that potentially could shrink loan balances and lower monthly payments for numerous homeowners, marking the biggest industry settlement since a multistate deal with tobacco companies in 1998. Hundreds of thousands of borrowers who lost their homes to foreclosure since 2008 would be eligible for payouts of about $2,000 each, without surrendering the right to join future lawsuits, sources said. In addition, mortgage servicers would agree to overhaul their business practices and curtail the maddening maze of bureaucracy that troubled borrowers often encounter when trying to get help.
Administration officials and the state attorneys general leading the settlement talks acknowledge that the deal would not solve all the nation’s housing woes, but they insist it would provide immediate and much-needed relief to homeowners and improve the broken mortgage servicing system. They also have said they are trying to craft a narrow legal release, so that investigations into the way loans were bundled and sold to investors and other areas of the mortgage process could go forward.
Still, a significant number of state attorneys general and activist groups fear the pending settlement would allow banks to pay only a fraction of what is warranted and escape legal culpability for a wide range of abuses that have yet to be fully investigated. They also say too lenient a settlement would send a troubling message that the financial giants who helped create the housing bubble won’t be held accountable for their role in the bust.
“The very notion that there could be a settlement with the big banks before there is an investigation of the scope of what the FBI warned was an ‘epidemic’ of fraud violates any sense of justice,” said Robert Borosage, co-director of the liberal group Campaign for America’s future.
New York’s Eric Schneiderman and attorneys general from Delaware, Nevada and other states have remained wary of the current deal and have launched their own investigations into aspects of the mortgage industry. California Attorney General Kamala Harris also backed out of the settlement talks last fall, saying the proposed settlement was “inadequate” for residents of her state. Given the massive number of foreclosures in California, her absence from a final deal would significantly shrink the penalties paid by the banks, which include JPMorgan Chase, Wells Fargo, Bank of America, Citigroup and Ally Financial.
“We have not yet reached an agreement with the nation’s five largest servicers, and we won’t reach a settlement any time this week,” said Geoff Greenwood, spokesman for Iowa’s Miller, adding that attorneys general need time to review the details of the settlement before deciding whether to support it. Republican state attorneys general were scheduled to participate in a conference call of their own Monday.
In the meantime, the pressure from outside groups probably will continue, as will the lingering questions about whether the imminent deal does enough to help struggling homeowners and hold banks responsible for their mortgage-related misdeeds.
“This could be a great settlement if the only claims that are being released are very minor, small claims,” said Rep. Brad Miller, (D-N.C.). “But if this is a blanket settlement of a great many different kinds of claims against the banks, this could be a very, very bad deal for the American people — and a sweetheart deal for the banks.”