Perception Trumps Reality in National Mortgage Settlement

In the past couple of months several of my bankruptcy clients received letters from Bank of America releasing them from all liability on second mortgages. What was strange is their mortgages were already scheduled to be discharged in a bankruptcy anyway, and the court had sent notice to Bank of America of that fact. A little research disclosed the reason for Bank of America's largesse. On August 21, 2014, the Department of Justice had negotiated a mortgage settlement with Bank of America requiring it to meet certain benchmarks for mortgage forgiveness or face harsh penalties. By allowing Bank of America to pad its statistics by including mortgages scheduled for a bankruptcy discharge, DOJ was following on the well trod path of laissez faire oversight that caused the Wall Street collapse in the first place.

Senator Elizabeth Warren famously criticized the Department of Justice ("DOJ") for settling claims against Wall Street banks rather than prosecuting the individuals responsible for the economic collapse in 2008. DOJ justified its actions by pointing out the billions of dollars in settlements it had exacted from Wall Street's bad actors. One media outlet complained the settlement foisted part of the cost on the American taxpayer by allowing BOA to deduct the settlement penalty on its taxes. Another derided DOJ's estimate of the billions in penalties BOA has paid as wildly inflated.

Like Alice Through the Looking Glass, nothing is at it appears to be. Or to parody a line from Jurassic Park, life, or in this case, big business will find a way. Apparently the perception that DOJ is getting tough with businesses like Bank of America is more important than the reality.