The mortgage servicing deal reached today between a coalition of state attorneys general and five major Wall Street banks is an important stepping stone in the effort to secure justice for homeowners victimized by the fraud and abuse behind the foreclosure crisis.
This settlement is perhaps most valuable for what it doesn't do -- thanks to the determination of attorneys general from states hardest hit by foreclosures, the provisions that would have extended far-reaching immunity to Wall Street banks from all future fraud-related prosecution have been removed, limiting today's agreement narrowly to the robo-signing infractions uncovered last fall.
It is important to bear in mind why exactly today's settlement must be viewed as a first step rather than a resolution of the struggle for accountability in the foreclosure crisis: the $17 billion pledged for principal reduction -- and the nearly-insulting $2,000 in homeowner restitution -- pales in comparison to the total $7.7 trillion in household wealth lost in the mortgage meltdown.
Furthermore, families of color absorbed a disproportionately high share of these losses: from 2005-2009, household wealth collapsed by 53% for black families and by 66% for Hispanic families -- compared to a mere 16% contraction for white households. Much of this historic and tragic loss can be attributed directly to bankers and brokers targeting borrowers of color with high-rate loans, even when they qualified for prime loans, often steering existing homeowners into high-rate re-financings that only served to strip hard-won wealth. Until a settlement is reached that secures a level of funding reflective of the degree of wealth lost in this crisis and distributed to those who need it most, the case of mortgage fraud and abuse will remain unresolved.
Going forward, it is crucial to ensure that the terms of this deal are fully met, particularly because the enforcement mechanisms remain murky. Steep penalties must be exacted for any failure to comply with the terms of this agreement. Thankfully, this settlement arrives at a time of steadily building momentum behind combating Wall Street fraud and staving off increased foreclosures. President Obama's recently announced Mortgage Fraud Task Force promises to help sustain the effort to hold banks accountable for wrongdoing, and the administration's continued action to promote refinancing of underwater mortgages are welcome signs of new momentum. However, government officials, activists, and homeowners must not stop until wide-scale principal reduction is achieved.
State attorney's general must continue to work with federal officials to ensure that banks complicit in the mortgage meltdown are held fully accountable for their actions. Failure to do so will risk continued, wrongful foreclosure not just of underwater mortgages but foreclosure of pathways to the American Dream itself.