Numerian on the foreclosure settlement

Amidst a longer post on the LIBOR scandal, The Agonist’s Numerian rants on the precedent set by the foreclosure settlement in the US:

In the settlement talks, the banks argued for and won the right to make a certain number of mistakes in mortgage calculations. Studies done by some of these attorneys general reveal that as many as 90% of the mortgage foreclosure documents they processed in their state had basic errors on calculation of interest and principal owed, or of fees incurred. We are supposed to feel sympathetic for these banks because instead of a 90% error rate, they are going to get their errors down to around 2%.

Why have over 40 of the state attorneys general signed on to this? Worse still, why have the CEOs of these banks (we are talking about the big four plus Ally Financial – aka the old GMAC), even countenanced such a gross admission of incompetence. How hard can it be to hire someone, train them to match up the right pieces of documentation, instruct them on the use of a hand-held calculator, and get them to work fixing the errors that already exist? Any college graduate ought to know how to find the mortgage amortization buttons on a financial calculator, and they would probably prefer this work than waiting on tables, which lately is the best on offer for people with bachelor degrees looking for work in today’s job market.

I can just hear the arguments the executives and their high priced attorneys made during the settlement talks. “We’re running assembly lines here, processing tens of millions of mortgage payments every month. There are bound to be errors; it comes with the territory.”

Having worked in the banking industry for nearly 30 years, I have ZERO sympathy for this. Either you do the job right, or you don’t do it at all. There are about eight thousand community banks in the United States that calculate mortgage interest and fees correctly ever day. They somehow have figured out how to program their computers to do this, and if need be, they have managers who can do it using a hand calculator.

True, they did not offer to service mortgages for other banks, like the big five players in the servicing business did, who thought with a large investment in computers they could automate the process and handle 15 million mortgages at a time. Now these banks discover they couldn’t even do that much, and of course, they refuse to hire the 30,000 to 50,000 staff members each of them would need to do the job properly with manual labor. So they get the politicians to provide them a waiver from having to perform Banking 101. Because of this, there are going to be people paying more interest or fees than they should. There are bondholders who are going to be cheated out of interest payments. Some homeowners are going to lose their homes in foreclosure, but all the politicians can do is smile for the cameras and claim they held the bankers’ feet to the fire.

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