Who's Behind the Latest Bank Giveaway?

Last week offered a very good snapshot of the state of things in the wake of mortgage crisis. On the one hand, there was news of a woefully inadequate $8.5 billion settlement as "remedy" for irresponsible (and worse) behavior by mortgage servicers. On the other, the Consumer Financial Protection Bureau announced regulations that might help stop such abuses from happening again.

The two news items underscore the marked difference between a government agency that stands down and one that stands up.

First up: the Office of the Comptroller of the Currency. Approximately 18 months and $1.5 billion ago, the OCC created an Independent Foreclosure Review to investigate big banks' well-documented mortgage abuses. These abuses included the infamous robo-signing scandal, in which bank-owned servicing companies used forged documents to foreclose on people illegally and force families out of their homes.

But that was just the tip of the iceberg. Servicers told homeowners they qualified for modified mortgages and allowed them to apply while simultaneously initiating foreclosures -- evidently open to whichever panned out first (rooting no doubt for foreclosure, since that's where the money is). Years after the mortgage bubble burst, servicers failed -- and in many cases continue to fail -- to hire enough customer service representatives to handle the crush of phone calls and paperwork, making it next to impossible for homeowners to get straight answers and very difficult for them to do what they need to do to save their homes.

Instead of investigating the mess itself, the OCC outsourced the job of identifying homeowners that had been wounded by servicer malfeasance. Private contractors who already worked for the big banks got the gig. No conflict of interest of epic proportions there, eh? After fiddling around for a year and a half, and sucking up $1.5 billion in fees, these "investigators" managed to review -- shock! -- only one third of the loan files they were given.

Last week, however, the OCC announced a settlement that will finally shut this fiasco down. At first glimpse, it looks like a great deal for consumers, with the servicing arms of megabanks including JPMorgan Chase, Citibank, Wells Fargo, Bank of America and six others agreeing to pay an eye-popping $8.5 billion.

Unfortunately, first glimpses can be deceiving.

"Did we drive a hard bargain? I think yes," Morris Morgan, a deputy comptroller at the OCC, told ProPublica.

I think not Mr. Morgan. Most of that money will pay for things the servicers are doing anyway, including loan modifications. Only $3.3 billion will go to homeowners, and that will be divided between 3.8 million borrowers. For those without a calculator handy, that's an average of $870 each. Be still my heart.

To someone who lost his house to mortgage servicer incompetence or malfeasance, that's not restitution. It's an insult. "The capped pool of cash payments is wholly inadequate in light of the scale of the harm," says Alys Cohen, staff attorney for the National Consumer Law Center.

Because the private contractors failed to do their job, no one really knows right now who among those 3.8 million actually got hurt by bad practices. So the settlement will be shared among people who were hammered as well as those who suffered little or no harm at all.

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