While today's big news about the $26 billion, 49-state settlement with the five mega banks at the center of the home loan and foreclosure debacle that led to the great recession has financial ramifications for Washington State homeowners (thousands of homeowners who were hit by the crisis will receive hundreds of millions of dollars in aid from the five banks—Ally/GMAC, Bank of America, Citi, JPMorgan Chase, and Wells Fargo), the news has political ramifications here too.

Washington State Attorney General Rob McKenna, the Republican candidate for governor, was on the lead negotiating team. McKenna basked in cheers from his staff at a press conference this morning, where he cited the bipartisan work on "the landmark settlement, the biggest in US history" that was "an aggressive new effort to reduce monthly mortgages" for those who "suffered from improper procedures by banks."[pullquote]“Our settlement holds America's largest banks accountable for harms homeowners suffered from shoddy loan servicing, illegal robo-signing and faulty foreclosure processing,”—AG Rob McKenna.[/pullquote]

Nationwide, the settlement earmarks $5 billion in cash payments to states and federal authorities, $17 billion for homeowner relief, and about $3 billion for refinancing.

Critics point out that the $26 billion settlement is only a fraction of the $750 billion in underwater mortgages, or negative equity (when borrowers owe more than their home is worth), in the US.

In Washington State, the settlement translates into $648 million, including: $455 million to homeowners who are in danger of foreclosure; $70 million to help loan modification for underwater borrowers; $45 million in foreclosure prevention programs; and $24 million in help to people who were foreclosed on, which translates into about $2,000 in direct checks.

“Our settlement holds America's largest banks accountable for harms homeowners suffered from shoddy loan servicing, illegal robo-signing and faulty foreclosure processing,”  McKenna said. “The settlement results from bipartisan cooperation among Democratic and Republican attorneys general partnering with two federal agencies. From the beginning, we have worked to help homeowners harmed by the banks’ corner-cutting and to implement strict new loan servicing and foreclosure standards to prevent future harm.[pullquote]”Rob McKenna, from day one, was out defending deals that would have let banks off the hook."—Jay Inslee spokeswoman Jaime Smith.[/pullquote]

McKenna faced criticism during the negotiations when terms were leaked last summer that made it look like the big banks were getting off the hook. Critics, including Washington State Democratic Party Chair Dwight Pelz, seized on the talk of immunity and bashed McKenna for potentially agreeing to waive investigations of past fraud. Several states, including California, dropped out of the talks because of the potential waivers. However, those states rejoined the talks and won concessions against releasing the banks from future investigations.

The NYT reports:

More than the dollar figures, the settlement had been held up amid concern by New York’s attorney general, Eric T. Schneiderman, that it provided too broad of a release for banks for past misdeeds, making future investigations much more difficult.

Mr. Schneiderman was able to win significant concessions from the banks in recent days.

In the agreement’s expected final form, the releases are mostly limited to the foreclosure process, like the eviction of homeowners after only a cursory examination of documents, a practice known as robo-signing.

The prosecutors and regulators still have the right to investigate other elements that contributed to the housing bubble, like the assembly of risky mortgages into securities that were sold to investors and later soured, as well as insurance and tax fraud.

Dan Sytman, McKenna's spokesman at the attorney general's office, tells PubliCola the NYT got it wrong; Sytman says Schneiderman did not win any new changes and that the right to investigate risky mortgages and securities has been part of the discussions for months. Schneiderman, who initially pulled out of the talks, is getting credit from Democrats for altering the course of the negotiations.

Asked at this morning's press conference about the waiver for banks that remains in place—the release from liability for robo-signing (the deceptive bank tactic that tricked homeowners into unwittingly signing foreclosure agreements online without full consent)---McKenna acknowledged that the settlement was "tailored to loan servicing practices," including robo-signing, but went on to stress that banks would "have no release from criminal liability" for larger fraudulent market activity "that may have contributed to the crisis in the first place."  And, indeed, those macro issues were precisely what had been angering liberal critics of the pending deal.

While those issues have been largely resolved, local critics on the left say the amount of money homeowners will get is inadequate. Low-income advocate Rachael DeCruz at Washington Community Action Network said in a statement: "The mortgage fraud settlement being announced today is a slap on the wrist for the big banks and a slap in the face for homeowners. It does not do justice for the millions of homeowners who lost their homes or hold the banks fully accountable for their crimes. For homeowners who were defrauded and lost their homes, $2,000 is too little, too late. It is a paltry down payment toward full relief for homeowners." [pullquote]"Inslee can't give the AG any credit because Inslee's a partisan hack."—McKenna spokesman Randy Pepple[/pullquote]

And while Washington CAN certainly acknowledged that changes were made to prevent banks from being let off the hook from future investigations, they were obviously aware of the potential PR victory for McKenna. DeCruz framed the changes as a victory for Democratic AGs from other states, explicitly leaving McKenna off the list: "The settlement announced today is stronger than it would have otherwise been because of grassroots groups and the courageous stance of Attorneys General from California, New York, Nevada, Delaware, and Massachusetts who fought hard to bring more relief to homeowners and make sure that any settlement does not allow the banks to avoid accountability for fraudulent activity not yet investigated."

Inslee spokeswoman Jaime Smith took a similar position, telling PubliCola: "This is a testament to the commitment and perseverance of our nation's most pro-consumer AGs who refused to settle for a deal that didn't hold the banks accountable. Earlier versions were just a giveaway to the banks, nothing more than a slap on the wrist."

Asked if McKenna deserved any credit for the final result, Smith says: "No. Rob McKenna, from day one, was out defending deals that would have let banks off the hook. If that deal had gone through it would have been an injustice. Thank goodness we have people like (New York AG  Eric) Schneiderman and (California AG Kamala) Harris and (Massachusetts AG Martha) Coakley fighting the battle for homeowners." (Schneiderman, Harris, and Coakley are all Democrats and all dropped out of the deal last year in protest before coming back to the table.)

McKenna campaign spokesman Randy Pepple responds, "Congresman Inslee doens't know what he's talking about, because he wasn't party to the negotiations. And Inslee can't give the AG any credit because Inslee's a partisan hack. It's unfortunate that he can't  look past his partisanship to recognize the value to Washington homeowners that the AG's involvement resulted in. All the AGs he [Inslee] gives credit to are Democrats because he's a partisan hack."

President Obama is hyping the settlement as a big win.

"We have reached a landmark settlement with the nation's largest banks that will speed relief to homeowners," the president said Thursday, laying out the details of a deal he said will "begin to turn the page on an era of recklessness that has left so much damage in its wake."

“These practices were plainly irresponsible and we couldn’t allow them to go unanswered,” Obama said, saying the settlement “will deliver some measure of justice for those families that have been victims of their abusive practices.”