In mega-settlements negotiated with the government, a dollar is rarely worth an actual dollar.
Inflated figures make sensational headlines for the
Officials familiar with the deal say the bank will pay
The agreement requires the bank to acknowledge making misrepresentations about the quality of its residential mortgage-backed securities itself and in those by Countrywide Financial and
Those two institutions were acquired by the bank in 2008 and were responsible for the bulk of the questionable loans.
The bank declined comment Wednesday.
Whether cash payments are structured as penalties or legal settlements can determine whether targeted companies can declare them as tax-deductible business expenses. Also, consumer relief is an amorphous cost category: If
Some relief comes from actions that do not cost the banks anything, including making loans in depressed areas or reducing the principal of mortgages owned by outside investors.
Banks earn a multiple of each dollar spent on some types of relief. Under
"Companies that have reached for these settlements have not taken an explicit charge for it," said
In discussing the deals with analysts, the banks "always say, 'just remember, there's the piece that's cash and the piece that's not cash.' In general terms, they're suggesting that the relief is stuff they're doing anyway."
Beyond the bonus credits, the lengthy durations of the deals mean banks can accrue some of the credits they need simply by running business as usual.
Even before its settlement with the
Both the department and the banks declined comment.
Consumer advocates said settlement amounts can obscure the actual costs at stake. But since the disputed business behaviors affected mortgage investors, not mortgage borrowers directly, they welcome any consumer aid.
"This is public policy making through settlements that aren't even related to the nature of the lawsuit," says
In the deal with
The actual settlement has turned out more complicated than cash handouts.
More than half will come from principal reductions, with the rest earned through actions such as writing new loans in distressed areas, donating foreclosed properties to community groups and temporarily suspending payments on some loans.
The report described the settlement as "a reasonable model from a consumer perspective." But one of its authors, Andrew Jakobovics, acknowledged that many of
It also can earn credit by waiving some closing costs on new loans to low-income home buyers and forgiving principal on loans where the bank began a foreclosure but never completed it.
"Will it cost them money? No," said Rheingold, who said he supports the settlements. "But would they have done it otherwise? No."
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