It isn't clear what is worse: the housing crisis that keeps deepening or the reports of pervasive banking fraud that keep getting exposed. With the banks facing billions in potential damages, perhaps some measure of justice can be done to the homeowners who have been the victims of the crisis and the crimes.
We're still not at the bottom of the housing mess. Home prices continue to fall. Now nearly 30 percent of homes with mortgages are under water. Another 2 million in foreclosures are due to come. Banks are sitting on hundreds of thousands of foreclosed homes, a dead weight on any recovery in home prices.
For millions of Americans, this is a calamity. The savings they thought they had in the value of their homes are gone. Many are paying on mortgages for homes that may never return to their original value. Millions are losing their homes to foreclosure, or choosing to walk away from investments that no longer make sense.
This is the fallout from the housing bubble and bust that triggered the global recession, and has left nearly 25 million in need of full-time work, while generating crippling budget deficits at the local, state and national level.
What is increasingly coming clear is that beneath this calamity is an extensive pattern of fraud, negligence and misbehavior by America's biggest banks.
Last week, the Huffington Post reported that confidential audits by the Department of Housing and Urban Development charged that the nation's five largest mortgage companies had cheated taxpayers. The HUD audits showed that the banks filed defective documents to get excessive reimbursement from the federal government on foreclosed loans. Now the Justice Department is trying to sort out criminal and civil enforcement actions.
Who were the five mortgage companies who together handle three-fifths of all U.S. mortgages? Only a Who's Who of our respected and biggest financial institutions: Bank of America, Citigroup, JP Morgan Chase, Wells Fargo and Ally Financial. Two of them, including Bank of America, refused to cooperate with the audits. Now they face civil and potentially criminal charges.
The bank scandals in the housing mess - from robo-signing, to mortgages financed on fraudulent terms, to defective securitization, to foreclosures on innocent homeowners - keep piling up. And now, efforts by the banks to shut down the investigations seem to be failing. In Illinois, the attorney general is reportedly examining potentially fraudulent court filings. Nevada and Arizona have launched lawsuits against Bank of America. New York Attorney General Eric Schneiderman has indicated that he will do a complete investigation of bank practices in the mortgage area, from fraudulent lending to illegal home seizures.
The Justice Department should expand a full investigation also. If the HUD audits prove to be correct, the banks will be liable for literally tens of billions of dollars. The damages recovered could provide an opportunity to provide relief for homeowners who have suffered wrongful foreclosure or been trapped in fraudulently issued mortgages. A carefully administered pool of funds recovered from the banks could bring a measure of justice to homeowners in cities like Detroit or Chicago where entire neighborhoods have been devastated by foreclosures.
When the bubble burst in 2007 and 2008, Washington's response, starting under Bush's Treasury Secretary Hank Paulson, was to focus on rescuing the banks. They were bailed out by the Treasury and the Federal Reserve. They emerged from the crisis bigger and more concentrated than ever. No major officer of a big bank was prosecuted. Million-dollar bonuses returned.
But now more and more indications of pervasive fraud or illegal mishandling of mortgages are piling up. Taxpayers and many homeowners have suffered losses as a result. The time for investigation, for prosecution and for remedy is long past due.