In a campaign stop in San Antonio, Texas during the 2008 presidential campaign then Democratic presidential contender Obama lambasted the CEO of a sub-prime lender for his greed in eagerly grabbing a $100 million buy-out package. The errant CEO got the cash despite the fact that thousands of home borrowers that his company hoodwinked into loans at below market rates faced foreclosure or the threat of foreclosure. Obama took much heat for skewering the CEO from Wall Street and some bankers.
But thousands cheered his fierce attack and expected that once in the White House an Obama Justice Department would crack down with all its legal weapons against the fraudulent sub-prime lending practices of the big banks. So far the record has been mixed, with as much expectation of tough action as frustration over the slow pace of the actions taken against the alleged fraudulent lending.
The pending Bank of America deal is a near textbook example of the promise of tough action running fast to try to catch up with the actual action taken. The deal if agreed to would provide some relief for distressed homeowners. The bank would kick out tens of millions to keep thousands of homeowners from total submersion in their sub-prime debt by either forgiving a portion of the loan amount, or substantially reducing their payments owed.
The deal would also compel the bank to strictly adhere to standardized lending practices, make full disclosure of loan terms and prohibit targeting of low income areas (and borrowers with deceptive lending practices). So far, so good.
But Bank of America officials get something that’s even more priceless. They get immunity from prosecution. They get a release from any liability for past lending abuses, failure to securitize loans in accordance with state laws, illegal behavior in foreclosing on properties, and most importantly immunity from any lawsuits from any of their alleged abuses or illegal practices.
This is a sweetheart deal for the bank. Lawsuits would present an endless legal nightmare and potentially cost the bank tens of millions spent in time, effort and legal fees to defend against them. It would also firmly imprint in the public mind that Bank of America is a shoddy, abusive, untrustworthy lending institution.
This would be an absolute fiscal Armageddon for bank stockholders. Already the value of their holdings has plummeted more than 30 percent over the past year as a result of the scandal and the bank’s wrangling over multiple settlement efforts and offers.
The fear of potential stockholder challenges and even lawsuits over the bank’s sub-prime lending woes has been a driving force toward pushing bank officials to settle, and settle fast, to do as much damage and image control as possible.
But the Justice Department’s possible settlement offer in a sense flies in the face of federal audits made public last May that found that Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial systematically defrauded taxpayers in their handling of foreclosures on homes purchased with government-backed loans.
According to the audits, the banks cheated the government by overvaluing their losses on foreclosed homes and submitting faulty and defective documents to get federal reimbursement. The Justice Department immediately got the result of the audit and presumably at that point had to make a decision whether to seek prosecutions or simply negotiate a settlement.
The obvious question then is did the Justice Department and the Obama administration give up way too much to the bank to cut a deal? It gave up a lot. The immunity from lawsuits and the immunity from prosecution of alleged wrongdoing officials is a tough nut to swallow.
The indisputable fact is that the bank made tens of millions on its alleged illegal and fraudulent lending practices. In the process, it caused untold wreckage, chaos, pain and suffering to thousands of distressed homeowners. For that someone among bank higher-ups should pay, and not just out of bank pocket dollars.
The flip side, though, is that to engage in a prolonged legal battle with Bank of America and the other banks that are also under fire from the Justice Department for their equally rotten lending practices would prolong the financial agony for thousands of those same distressed homeowners that are desperate for relief. This would in effect pile more pain on pain.
The charitable thing to say is that the pending deal is both a win-win and a lose-lose for the homeowners that need relief and the Obama administration that recognized that banks were literally getting away with lending murder at the expense of homeowners and the nation’s economy. And that it had to end.
The pity is that it had to end this way with so many who occupy the cushy seats in Bank of America’s suites skipping away untouched despite the damage they wrought.
Earl Ofari Hutchinson is an author and political analyst. He is a weekly co-host of the Al Sharpton Show on American Urban Radio Network. He is an associate editor of New America Media. He is host of the weekly Hutchinson Report Newsmaker Hour on KTYM Radio Los Angeles streamed on ktym.com podcast on blogtalkradio.com and internet TV broadcast on thehutchinsonreportnews.com Follow Earl Ofari Hutchinson on Twitter: http://twitter.com/earlhutchinson