photo credit: tolkien1914

At long last, the foreclosure settlement between the U.S. government and banks seems to have arrived. Last Thursday, a $26 billion settlement was announced and is being lauded as the largest multi-state settlement since the infamous 1998 tobacco agreement. Unfortunately, this settlement is just too small to truly help the average citizen. In fact, this settlement may even hurt the housing market because it sends a message to homeowners who have kept up with their monthly mortgage payments that being irresponsible and not paying your mortgage loan back is what is rewarded in this country. Policymakers argue that this is simply the "moral hazard fallout" from the settlement.

Others purport that although we talk the good talk when it comes to "punishing corporate crimes and helping victims of abuse," it seems that banks and lenders have - yet again! - gotten off with only a slap on the wrist. Banks may end up benefiting the most from the settlement, too! The Wall Street Journal explains the break-down, "$5 billion in cash payments, including $1.5 billion to borrowers who were wrongly or illegally foreclosed on between September 2008 and December 2011. Borrowers could receive up to $2,000, depending on the number filing claims." But how useful will $2,000 be to those homeowners who have already lost their homes and are having to throw money down the drain by renting now that their credit is damaged? The $20,000 loan modification would be wonderful were it not for the average debt on an underwater mortgage is $50,000! The Wall Street Journal goes on to explain that banks will receive $20 billion in credits "for principal write-downs and other aid to homeowners at risk of default. This tally includes $3 billion for refinancing of mortgages currently underwater." (It is also not clear for what the extra $1 billion is earmarked.)

Read the complete article.