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"These are large companies with a lot of complicated processes. It's not just about putting a Band-Aid on the issue; it's about getting the issue right." borrowers from relocating to regions where they might be able to find work. In a report on the settlement, Paul Diggle, property economist at Capital Economics in London, rejected the assertion offered by both bank and government officials that the deal would help turn around the American housing market. Nonetheless, the recipe for a settlement was there: politically ambitious state attorneys general targeting an unpopular industry with lawsuits based on creative legal theories that may or may not stand up in court, using their combined legal power—and relentless negative public relations—to force their opponents to the bargaining table. While the government involvement in talks with the tobacco companies was built on the theory that the tobacco victims could cost taxpayers money in the form of higher government healthcare expenses, the government had a more direct stake in trying to bring closure to the mortgage mess through the regulatory banking infrastructure. As with the tobacco settlement, after lengthy negotiations, both sides came to an agreement to buy the industry some temporary protection. The banks didn't admit wrongdoing as part of the settlement. Federal and state law enforcement authorities could still pursue criminal action against them, and individuals who believe they were wronged can still sue the banks in civil lawsuits. The settlement directed buckets of cash to desperate state coffers and provided elected officials fodder for campaigns in pursuit of higher offices. Settlement Not Up to Snuff While the mortgage settlement is just six months old, early analysis suggests it will likely fall far short of its objectives. "I have seen minor evidence that short sale deficiency waivers are being offered 48 slightly more frequently than before, and opposing counsel in foreclosure cases [are] reaching out a bit more to us in order to receive documents to underwrite modifications," observed Troy Doucet, a foreclosure defense attorney in Columbus, Ohio. "However, I still receive calls from frustrated homeowners whose lenders still aren't reviewing or underwriting their loans for modifications. We also experience, as do our clients, denials for loan modifications for impermissible reasons." The settlement is not likely to have the broader impact on the economy its designers expected. The deal applies only to privately held mortgages and not to those owned by mortgage giants Fannie Mae and Freddie Mac. Banks and private investors own about half of all U.S. mortgages, or about 30 million loans; Fannie and Freddie own the other half. According to Robert Maddox, an attorney who represents Ally Financial, the settlement may have been built on a faulty premise. Maddox, the American Banker reported, says he told each of the 49 state attorneys general as well as officials from the Justice Department and HUD that the allegations of improper foreclosure practices that set the settlement in motion were nothing more than a ruse by regulators to extract money for defaulted borrowers and impose more requirements on the five largest mortgage servicers. "It was a Trojan horse for the government to fix perceived problems in mortgage servicing," Maddox, a partner at Bradley Arrant Bolt Cummings LLP, a 400-lawyer firm in Birmingham, Alabama, told the paper, challenging the extent of so-called "robosigning." The settlement may have actually made matters worse. "In the states where robosigning was actually an issue—states that execute judicial foreclosures like New York, New Jersey, and Florida—foreclosure activity has actually accelerated," said Rick Sharga, EVP of Carrington Mortgage Holdings in Santa Ana, California. "This has surprised some politicians and community activists, but it's a very predictable outcome since foreclosure activity had essentially been put on hold while the settlement was being worked out. All those delinquent loans only became more and more seriously delinquent during the year that the AG negotiations were taking place." In economic terms, there are other unintended consequences. "The AG settlement has slowed foreclosures but not in the way most people anticipated," Sharga added. "By requiring the major servicers to write down billions of dollars in loan balances, incenting them to do so sooner rather than later, the AG settlement inadvertently caused a slowdown in foreclosure activity in non-judicial states like California. Servicers can write down loans on a large volume of distressed properties in states like California, where prices have plummeted since peaking in 2006, in order to reach their required dollar amounts. But in order to do so, they need to stop foreclosure proceedings, lest they be accused of dual tracking. This process has caused a slowdown, but only a temporary one." Help on the Horizon? The government is looking to other, longer-term changes from the settlement. The servicers, according to government documents, agreed to implement new servicing standards designed to correct the kind of conduct officials said harmed consumers during recent years. The settlement's mandates are intended to: • Stop many past foreclosure abuses, such as robo-signing, improper documentation, and lost paperwork, through new mortgage servicing standards. • Require strict oversight of foreclosure processing, including of third-party vendors. • Impose new standards to ensure the accuracy of information provided in federal bankruptcy court, including pre-filing reviews of certain documents.

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