I wanted to offer a different perspective on the pending deal between various banks and state Attorney Generals that has been in the news recently. While the outlines of the deal have been rumored, what hasn’t been widely discussed is how nonsensical this deal is. As I see it, this deal is nothing more than cheap pr for the various Attorney Generals and does nothing to help anyone. Let me explain.
The banks have agreed to pay for various irregularities with their foreclosure actions. Fine. However, there is one thing missing here. What about the borrowers? They are being completely ignored. They are the ones that failed to pay banks for months, if not years. That hasn’t changed. They still haven’t paid. So the banks that lost tons of money from defaulting borrowers now to shell out even more money to appease overzealous government bureaucrats who are grandstanding to get more votes.
Did I miss the cause and effect relationship between procedural irregularities with a foreclosure action and borrowers not paying? Wait. They stopped paying before the foreclosure action was even commenced, didn’t they?
My point is simply that defaulting borrowers are getting rewarded by this deal for their culpable behavior. The fact that there were procedural irregularities doesn’t erase the fact that there was an underlying default and that borrowers failed to pay.
I see this as akin to the doctrine of fruit of the poisonous tree from criminal law. I am sure you are familiar with it. That’s the questionable doctrine that holds that if the police secure evidence improperly, even if such defects are minimal or hyper technical, then the criminal is freed. Hence, a mass murderer will be set free if a hyper sensitive judge thinks that the police improperly searched him. That sounds crazy, but I don’t think it’s any less crazy in the realm of mortgage foreclosures.
Consider it this way. If you lend someone money and they fail to pay you back, how would you feel if you then had to pay a fine to the State Attorney General because you didn’t ask for your money back properly?
I have always said that I think that there is far more predatory borrowing than predatory lending. I mean, if someone receives a large sum of money from a bank that he isn't qualified to receive, then who is the predator?