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Tuesday, January 24, 2012

The Grand Mortgage Crisis Bargain

The New York Times reports that as many as one million homeowners facing foreclosure could have their mortgages cut by about $20,000 each as part of a long-awaited deal being negotiated between "state attorneys general, federal officials and the nation’s largest mortgage servicers."  The grand bargain, which may reach as much as $25 billion, would use up to $17 billion to reduce principal for homeowners facing foreclosure.  Another portion would be set aside for victims of improper foreclosure practices, with about 750,000 families receiving about $1,800 each.  Of the chief obtacles to a final settlement are the battles between state attorneys general over the size and distribution of the final award.  New York's AG wants the banks to pay more, overall.  California also apparently sought a specific set aside for its own region, one of the hardest hit in the country, which put off other state AGs. 

Given the size and importance of a national relief package like this, one might think that the most natural place to resolve these kinds of regional battles would be in Congress.  The tendency to rely on state AGs for such a broad national package, instead of Congress, dates back at least as far as Congress' failed attempt to broker a resolution to the national tobacco litigation  in the 1990s.  I describe the reasons for the rise of this kind of "executive branch compensation" over legislative funds here, as well as its implications for transparency, fairness and public participation in such massive settlements. 

For those interested in a more detailed discussion the federal or state executive branch role in such settlements, see Adam S. Zimmerman, Distributing Justice, 86 N.Y.U. 500 (2011) (tracing the rise of federal agency based settlement funds, which collected over $10 billion over the past decade); Adam S. Zimmerman & David M. Jaros, The Criminal Class Action, 159 U. Pa. L. Rev. 1385 (2011) (tracing the rise of massive criminal restitution funds in deferred and non-prosecution agreements between corporate defendants and federal prosecutors); Donald G. Gifford, Impersonating the Legislature, State Attorneys General and Parens Patriae Production Litigation, 49 B.C. L. Rev. 913 (2008); Jack B. Weinstein, Mass Private Delicts: Evolving Roles of Administrative, Criminal and Tort Law, 2001 U. Ill. L. Rev. 947 (2001). 

Posted by Adam Zimmerman on January 24, 2012 at 11:11 AM | Permalink


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It is interesting that in this quasi-mass-tort case, unlike the others you have blogged about - the BP oil spill, 9/11, Bank of American - there is no attempt whatsoever (at least as to the $17 billion) to match distributed compensation to wrongs suffered at the hands of the plaintiffs.

The class of homeowners facing foreclosure is undoubtedly wildly over- and under- inclusive.

Posted by: Brad | Jan 24, 2012 12:00:35 PM

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