The federal government and state attorneys general, including Washington State's Rob McKenna, are currently negotiating a settlement with the big banks over foreclosure abuses, with a deal expected within the next few weeks.
Unless the public stays vigilant, this settlement could turn into a slap on the hand for Wall Street, with a slap in the face to homeowners.
Recently reported settlement proposals would effectively absolve major financial institutions of meaningful civil and criminal liability in one of the largest alleged fraud schemes of the Wall Street Recession.
Because the deal lets the big banks off easy, attorneys general from New York, Delaware, Massachusetts and Nevada are no longer participating in discussions (with California mostly out as well). The last thing Attorney General McKenna should be doing right now is absolving the big banks of responsibility for their role in the foreclosure crisis.
We want to applaud Senator Maria Cantwell (D-WA) for demanding in a letter recently that the Department of Justice fully investigate fraudulent foreclosures before coming to a settlement that lets the big banks off the hook. Cantwell rightfully insists that a final settlement must adequately compensate victims of the foreclosure crisis.
So, what would a fair settlement look like?
Forcing big banks to write down all underwater mortgages to market value would help stabilize the housing market while helping families and our economy get back on track. Widespread principal reduction would save Washington homeowners $496 per month, add a total annual stimulus of more than $1.4 billion, and create more than 20,000 jobs.
Those are big numbers, especially in a struggling economy. Fewer families would lose their homes, more money would go in homeowners’ pockets, and more jobs would be created—all resulting in a stronger economy.
It’s no secret that Washington has been hit hard by the foreclosure crisis. According to a recent report by the New Bottom Line, there are currently 238,476 underwater mortgages in Washington.
RealtyTrac reports that Washington had over 29,398 homes go through foreclosure in the first six months of 2011.
Imagine the entire population of SeaTac getting evicted in just half a year. That’s the scale of this problem.
A national study by the Center for Responsible Lending found that black and Latino borrowers, respectively, were 76 and 71 percent more likely than whites to experience foreclosure.
You don’t have to look hard to find people who are impacted. At church every Sunday we hear of another family that’s been foreclosed on, or is facing foreclosure.
It’s clear to us the impact underwriting principal could have on our lives and the lives of those in our communities. An additional $496 per month could save someone’s home. It could determine whether a family that can afford to put food on the table. It would pump much-needed money and jobs into our economy and set us on a path toward recovery.
History has shown that letting big banks off the hook does not help our communities. After being bailed out by taxpayer dollars, the big banks saw their profits skyrocket, while low and middle-class families have carried the burden of the financial crisis.
The big banks need to be held accountable for their role in crashing our economy and Washington State residents deserve tangible results. We have a chance to do right by families throughout the country by require the banks to write down all underwater mortgages to market value.
If Rob McKenna settles for anything less, it’s a clear sign that the big banks are more important than the millions of middle class families who are suffering.