Turn On The Lights, Watch The Roaches Scatter Part 70

The Foreclosuregate fiasco continues as the banks have made a chump change settlement offer:  $5 billion.

The proposal made by banks yesterday during settlement talks in Washington came after state attorneys general and federal officials offered revised settlement terms and a proposal for banks to fund principal writedowns for homeowners.

The probe by all 50 states was triggered by claims of faulty foreclosure practices after the housing collapse, which state officials said may violate their laws. The original settlement proposal offered by states and federal agencies drew criticism from banks and Republican attorneys general opposed to a deal that would reduce principal amounts for borrowers.

In a new proposal, officials called for a fund, administered by state and federal officials, that would in part pay for principal writedowns, said Geoff Greenwood, a spokesman for Iowa Attorney General Tom Miller. Miller, a Democrat, is leading the negotiations for the states. Attorneys general haven’t made a proposal for a monetary payment by the banks, he said. 

Of course Republicans are rejecting the offer.  They don't want the banks to pay a dime.  On the other hand, $5 billion's not even a drop in the bucket for the kind of principal reduction needed to clear up the housing depression.  That's only enough money to help a small fraction of homeowners underwater...and Republican attorneys general involved in the case are objecting even to this pittance.

Republican attorneys general criticized the original settlement proposal, saying the plan for principal reductions would encourage borrowers to default on their loans to reduce their payments. Some of those attorneys general met yesterday in Atlanta to discuss the issue, said Adam Temple of the Republican State Leadership Committee.

Bob Davis, an executive vice president with the American Bankers Association, spoke to the group in Atlanta, telling them principal reductions don’t work, he said in an interview. Loan balances must be reduced so much for borrowers struggling to make payments that it’s a better deal for lenders to foreclose instead, he said.

“Principal reductions don’t substantially improve the cash flow problem,” Davis said. “You can’t lower principal enough to make it an attractive tool.” 

News flash:  the bankers don't like it, and they are expecting the Republicans to scuttle the deal.  For their part, the Republicans are looking like they plan to do just that:

Oklahoma Attorney General Scott Pruitt, a Republican, said last month that he may negotiate an alternative accord with the banks if the national settlement turns out to be “inconsistent with our conviction.” 

In other words, expect Republican states to start dropping out of this settlement and negotiate their own "solution" as the whole national thing falls apart.  The banksters are going to walk completely.

Count on it.