Follow the Money: Big Banks, DOJ Find Benefits in Settlement Deals

The Justice Department might have talked a good game about punishing major banks like JPMorgan Chase, Bank of America and Goldman Sachs for their involvement in the recession that set the the U.S. economy reeling six years ago.

But as Lynnley Browning explains in Newsweek, there is more to the story behind the big-figure settlements that the DOJ required those banks to pay:

Because settlements can be deducted from tax liabilities, for nearly every dollar a bank or lender has pledged to pay in cash or pony up in other ways—such as through buying back soured mortgage-backed securities, extending cheaper loans or forgiving failed loans held by struggling homeowners—up to 35 cents will find its way back into bank coffers, a reflection of the 35 percent federal corporate tax rate.

Deep in the legalese weeds of the settlement documents lies buried treasure. Big banks such as Bank of America and JPMorgan Chase will receive deductions against the corporate tax that will amount to between half and nearly three-quarters of their multibillion-dollar settlements, at least. Meanwhile, midsized banks and nonbank lenders generally get to deduct the whole shebang.

[…] Federal tax rules allow companies to deduct from their tax returns as an ordinary cost of doing business any settlement payments that are construed, explicitly or not, as restitution or compensation. Payments flagged as penalties or fines, typically outlined in criminal cases, are generally not deductible, as opposed to the civil settlements with banks.

While Defenders Cry Foul, JPMorgan Chase’s $13 Billion Banking Settlement a "Screaming Bargain"

In the largest banking settlement in U.S. history, the banking giant JPMorgan Chase is set to pay a record $13 billion fine to settle investigations into its mortgage-backed securities. Five years ago, the bank’s risky behavior helped trigger the financial meltdown, including manipulating mortgages and sending millions of Americans into bankruptcy or foreclosure. JPMorgan’s preliminary settlement with the U.S. government may end up costing much less after taxes — closer to $9 billion because the majority of the deal is expected to be tax deductible. The deal is expected to be followed by a larger agreement with the Justice Department still in the works. Many in the media have portrayed the deal as unfair to the bank. The Wall Street Journal describes it as the government "confiscating" half of JPMorgan’s annual earnings to "appease … left-wing populist allies" of the Obama administration. Meanwhile, the New York Post portrayed it as a kind of bank robbery, running a headline that read: "UNCLE SCAM: U.S. robs bank of $13 billion." We are joined by Yves Smith, financial analyst and founder of the popular finance blog "Naked Capitalism." Smith is the author of the book, "ECONned: How Unenlightened Self Interest Undermined Democracy and Corrupted Capitalism."

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Source: democracynow.org
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National Mortgage Settlement Monitor Finds Few Flaws As Consumer Advocates Cry Foul

The government-appointed monitor overseeing mortgage practices as part of last year’s robo-signing settlement between five big U.S. banks and dozens of government agencies found few violations after grading the banks’ compliance with ambitious new standards, according to court documents filed Tuesday.

The finding of just three audited failures by Joseph Smith, the government-appointed watchdog heading the Office of Mortgage Settlement Oversight, may prompt criticism by borrower advocates, consumer attorneys, and members of Congress after numerous reports by state attorneys general and housing advocates of pervasive noncompliance with the new mortgage servicing rules the banks agreed to implement as part of the 2012 settlement.

Ed DeMarco's Refusal on Principal Reductions Grounds for Firing

The single largest obstacle to meaningful economic recovery is a man who most Americans have probably never heard of, Edward J. DeMarco.

From his perch as acting director of the Federal Housing Finance Agency, DeMarco oversees Fannie Mae and Freddie Mac, the government-owned mortgage behemoths that collectively control about half of all home loans in the land. What he does shapes both the national housing market and the ability of troubled borrowers to hang on to their homes. What he has been been doing lately has been so unhelpful that Democratic lawmakers and grassroots advocacy groups are properly demanding his ouster.

DeMarco steadfastly refuses to allow Fannie and Freddie to help distressed homeowners by writing off principal balances on their mortgages. This has ensured that tens of millions of borrowers remain "underwater," meaning they owe the banks more than their homes are worth -- a status that has an alarming tendency to portend foreclosure. His refusal is based on logic that is both elegantly simple and tragically flawed: He is responsible for cleaning up the books at Fannie and Freddie, so he is against spending money.

Some States Using Mortgage Deal Funds To Close Budget Gaps

Well, that was fast.

Two states have already announced that they won't be using all of their share of the $25 billion allocated in Thursday's historic foreclosure settlement to pay its intended recipients -- the homeowners and borrowers who saw the housing market collapse beneath their feet.

Instead, in some areas, a share of those dollars is likely to be diverted to state budgets, in a bid to offset some of the massive deficits that states have been struggling with since the economic downturn, according to reports.

In Wisconsin, Governor Scott Walker and state Attorney General J.B. Van Hollen have announced plans to use $25.6 million of the settlement money -- about 18 percent of the $140 million Wisconsin will get in total -- to plug holes in the state's budget, according to the Milwaukee Journal Sentinel. As the MJS notes, this is a reversal of Walker's previous opposition to using legal settlements to close budget gaps.

Meanwhile, in Missouri, state Attorney General Chris Koster has said that he plans to put $40 million of Missouri's settlement money -- about 20 percent of the total $196 million -- into the general state fund, apparently in response to Governor Jay Nixon's call for a stronger college and university budget, Stateline reported.

50-State, $25B Mortgage Settlement: Relief for Struggling Homeowners or Bailout for Big Banks?

The U.S. Justice Department has unveiled a record mortgage settlement with the nation’s five largest banks to resolve claims over faulty foreclosures and mortgage practices that have indebted and displaced homeowners and sunk the nation’s economy. While the deal is being described as a $25 billion settlement, the banks will only have to pay out a total of $5 billion in cash between them. We speak to one of the settlement’s most prominent critics, Yves Smith, a longtime financial analyst who runs the popular finance website, "Naked Capitalism." "The settlement, on the surface, does look like it’s helping homeowners," Smith says. "But, in fact, the bigger part that most people don’t recognize is the way it actually helps the banks with mortgages on their own books... The real problem is that this deal is just not going to give that much relief."

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Source: Democracy Now! 
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FDIC Objects To Bank Of America's $8.5 Billion Mortgage Settlement

In June, a director at Bank of America described the company's 2008 acquisition of Countrywide Financial -- the mortgage lender whose holdings included thousands of toxic assets -- as "the worst deal we ever made."

On Monday, Bank of America hit the latest in a long series of roadblocks in trying to put that deal behind itself. The Federal Deposit Insurance Corporation, the government agency responsible for taking over failed banks, filed an objection with the State Supreme Court of New York regarding an $8.5 billion settlement BofA agreed to pay earlier this summer as a partial result of its Countrywide portfolio collapsing, Bloomberg Businessweek reports.

Bank of America announced in June that it would pay the settlement to a group of investors who claim they lost money when BofA mortgages fell through. But a number of parties have come forward to object to the terms of that settlement, according to Forbes -- including states and investors involved in the claim -- saying they lack sufficient information to tell if the settlement is appropriate