What Levitin fails to acknowledge is that there is no $700 billion to contribute to wiping out negative equity, nor is there anything close to that. Even if it were possible for the AGs to win $700 billion from the banks in lawsuits, the banks couldn't pay. Moreover, judgments of this size or anything close to it, would put the banks into another crisis, we'd have another deep recession, housing prices would go down more, and more negative equity would result, so we wouldn't wipe out negative equity anyway.
Of course, the AGs are never going to win $700 billion or probably even $70 billion in court. Much as I like aggressive AGs like Schniederman, Biden, et. al., what have they won so far? And here we are, going on five years into this mess. By the time they win anything, either the housing crisis will have run its course or it will have gotten much worse... in either case, it's really too late to do much good. The AGs who have put their stock in this multi-state settlement will be even later in getting money from the banks... if they bring suits at all.
I think the comparisons to HAMP are apt. Of course HAMP is insufficient, but it did do some good too. To those for whom HAMP was the difference between staying in their house and getting kicked out, they are probably glad it was there. But there was no way it was ever going to help everybody, or even half of everybody, nor could it. Same with the settlement... it won't end foreclosures or solve the list of problems that Levitin lists. But it might be marginally better than not settling.
Think about the alternatives:
Holding out for a tougher settlement does not seem to be realistic. Banks are not going to sign their own death sentence. There's already pushback by at least one servicer against the terms of this relatively mild settlement. Almost by definition, a settlement will not completely satisfy either side. Know this: folks who have been advocating a hard line against the banks will not be satisified by any settlement that will be signed by the banks. But that does not mean it is not in the best interests of the economy to settle.
Abandoning the settlement altogether is more or less accpeting the status quo of grinding this thing out one court case at a time. Look at New York, and Nevada, and Delaware, and the other states where the AGs have withdrawn from the settlement-- have the problems on Levitin's list been solved there? Are they close to being solved? How long is it going to take? And that's not to say there won't be plenty of issues to litigate even if a settlement is signed, but at least a few issues will be resolved and there will be some resources for principal reductions for some who would face foreclosure otherwise.
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