The financial crisis of 2008 and the ensuing bailouts of big banks and those that insured them gave us the term Too big to fail. Now, as the fallout rolls into a fifth year, the crisis is gaining a second defining phrase: Too big to jail.
Last week federal banking regulators made the suggestion of progress on accountability by announcing an $8.5 billion settlement with 10 banks. It is aimed at giving relief to 3.8 million homeowners who were improperly foreclosed upon in 2009 and 2010.
Many of the foreclosures involved massive robo-signing of documents without proper review of the fairness of the loans terms or the borrowers rights. The settlement includes $3.3 billion in direct payments to homeowners and $5.2 billion in loan modifications.
The payout sounds impressive, particularly coming on the heels of other multibillion-dollar settlements that the federal government has reached with offending lenders. But it turns out it was a light penalty imposed after the banks, at the governments behest, employed consultants to do an independent review of the foreclosures.
The review was so botched that the government finally called it off and decided to distribute the settlement money to the homeowners without a clear assessment of the flaws in each foreclosure. The lack of case-by-case reviews leaves the banks less exposed, but the Office of the Comptroller of the Currency decided the mess was just too deep to sort out in a timely fashion.
Here we see the twisted genius that is becoming the hallmark of this dismal chapter of American history. Bad banks and mortgage companies committed a crime so big and broad that those who enforce the laws cant count all the offenses or find the offenders in the forest of their misdeeds. So much has been stolen and destroyed, and yet so few have been indicted, convicted and put behind bars.
President Obama came into office as the economy was collapsing. It wasnt his fault. But surely it is his failure that more has not been done to track down and arrest those whose fraudulent practices led to the crisis that exploded the housing industry and still hobbles the economy.
And it is to Obamas shame that he has not done more to help those caught in bad mortgages and illegal foreclosures who have lost their good credit, their savings and their homes.
Despite the lack of teeth so far in the federal response, there were two good developments last week.
One came Thursday when the new federal Consumer Financial Protection Bureau announced a new Ability-to-Repay rule. It requires that lenders offer mortgages that borrowers can actually afford to pay back.
You might have thought that was the standard, but prior to the crisis, lenders were peddling home loans loaded with hidden rates, fees and balloon payments. They knew the borrowers couldnt pay, but they didnt care. They sold the toxic loans to someone else.
Secondly, the huge settlement checks being written by banks and mortgage companies served as evidence of who really caused the crisis. For years, conservatives have blamed the meltdown on government policies that encourage home ownership among people with low incomes. They specifically point to the Community Reinvestment Act for requiring banks to give mortgages in struggling areas. Fox News Sean Hannity once summarized the cause of the financial collapse this way: The federal government and the Democrats, they forced these banks, through the Community Reinvestment Act, to make these risky loans. The risky loans started the subprime mortgage crisis which impacted all these financial institutions, which needed government bailouts.
It wasnt greedy, unethical financiers or bankers who caused the crisis, the Hannitys of the world say. It was do-gooders in government who wanted to put poor people in homes of their own. In other words, it was the poor who couldnt pay who brought down the housing finance industry and then the whole economy.
This notion is as wrong as it is persistent. Roberto Quercia, a professor and director of the UNC Center for Community Capital, says that the act didnt cover most of the subprime lenders and that loans given under its standards tended to be affordable and had a high rate of repayment.
Once you look at the numbers, the evidence is just not there that the CRA caused the crisis, Quercia says.
Some conservatives can insist on blaming the victims, but this week lenders agreed to hand over billions of dollars. Its still far from enough, but at least the paybacks make it clear who the real, if still unindicted, culprits are.
Editorial page editor Ned Barnett can be reached at 919-829-4512, or firstname.lastname@example.org