Banks to dole out compensation to homeowners

A "for sale" sign stands outside a new home with a reduced price in Des Plaines, Ill. This settlement over foreclosure abuse practices might just be the tip of the iceberg in trying to fix the nation's housing market.

David Brancaccio:The way the states see it, banks played fast and loose in processing the wave of foreclosures that hit when the housing bubble burst. Today, federal officials confirmed the remedy: a $25 billion settlement between the five largest banks in the land and every state except Oklahoma.

Marketplace's David Gura has the latest from Washington.


David Gura: Four million Americans have been through foreclosure since 2007, and for a fraction of them -- for 750,000 victims of foreclosure fraud -- today’s announcement is good news.

Anthony Sanders teaches real estate finance at George Mason University.

Anthony Sanders: They’re going to receive a check.

For about $1,800. It’s compensation from the banks for being sloppy during the foreclosure process.  David Reiss is a professor at Brooklyn Law School. He says that’s really just a drop in the bucket.

David Reiss: It seems like small recompense for what happened.

Bank analyst Bert Ely agrees:

Bert Ely: I mean, maybe that covered the cost of their moving expenses.

You see, according to Ely, today’s settlement only deals with part of the housing crisis.

Ely: It doesn’t begin to address the underlying causes of the sub-prime lending and the housing bubble that came along a couple of years ago, and has now burst with very painful consequences.

The deal does try to prevent more damage. About a million homeowners who weren’t foreclosed on will be able to get better terms on their mortgages. Some of them, who have homes that are underwater -- homes that are worth less than their original mortgages, could get a break to save them money.

Anthony Sanders, at George Mason University, says today’s settlement doesn’t mark the end of this mortgage mess.  

Sanders: Very simply, this is going to go on and on and on.  It’s a political issue.

The settlement doesn’t rule out future lawsuits, and the states’ attorneys general say they plan to go after more banks soon.

In Washington, I'm David Gura, for Marketplace.

About the author

David Gura is a reporter for Marketplace, based in the Washington, D.C. bureau.

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