I think there is much more to these settlement terms than you wrote about. You definitely should write another article about the Constitutional implications of the 27-page “Settlement Terms.”

I say this because, regardless of whether there is any “agreement” in the
future with the servicers, the document itself reveals the policy toward housing of both the United States Government and the States. I think that if you examine the terms you will see that it concedes what has long been sought by housing advocates: a right to housing.

In particular, the United States has long maintained (Geithner just restated it the other day) that there is no RIGHT to a mortgage modification. There is a reason the government keeps taking this line, even though it has seemed that it is encouraging mortgage modifications.

It has to do with the Constitution. Housing enjoys only “minimum scrutiny” under Lindsey v. Normet. That is, there are virtually no individually enforceable rights in housing, and the political system has nearly absolute control over housing. Housing policy need only be “rationally related to a legitimate government purpose.” One of the reasons the Court did not grant housing a higher level of scrutiny in that case was its concern over the idea “that the Constitution expressly protects against confiscation of private property or the income therefrom.” Mandated reductions of mortgage principal
are exactly that.

The concern of the political system is that if a higher level of scrutiny is granted for housing–if housing is granted, for example, intermediate scrutiny, which says that an eviction would have to “substantially advance an important government purpose”–then virtually all power over housing (i.e., the money related to it) would leave the political system and be placed in the hands of individuals according to court-mandated standards.

However, it has become increasingly clear that U.S. ownership interests in
financial institutions mean that these institutions are acting as the government in HAMP modifications. Thus, the HAMP procedures are actually requirements under the Due Process Clause of the Fifth Amendment. Under the servicing agreements between the servicers and financial institutions/the U.S., there is a third party beneficiary Federal Common Law right to a HAMP modification. (See in particular, the Judge’s reasoning in the Southern District of California Marques v. Wells Fargo case.)

The U.S. has fought a losing battle stating that HAMP does not create a housing right, even though a spate of poorly/casually reasoned cases seem to suggest otherwise–and by the way this is a right to a HAMP modification which in FACT reduces the risk of housing loss, not necessarily the government’s 31% debt to income level.

Of course, what the U.S. has feared is that any increased right in housing for homeowners will be instantly extended to renters under equal protection. But now we see by the “Terms” (generated by, among others, the Department of Justice), that the Government DOES believe housing enjoys a higher level of scrutiny, and that there is indeed an individually enforceable right to housing.

Look through the document to see how often the word “shall” is used. And it is used to require modifications. Also, notice that the new “review” process must be by an “independent” entity. This means quasi-judicial (and soon to be official judicial) review in order to see that the right is enforced.

So really, the “Terms” are the surrender of the United States and the States to the proposition that HAMP creates an individually enforceable right to housing.

That is the importance of the “Terms” and you should let your readers know that.

Cheers,
John Ryskamp

You’re not looking at all the issues, and you have some blind spots. Here are a few:

1. Who has legal title? The homeowners are presented as innocent purchasers, but the MBS investors are going to say they knew exactly what was going on and agreed to it. Look at the factual representations homeowners signed off on in buying and selling. The MBS investors will go after title. These titles will wind up in constructive trusts, immovable until the end of litigation. The homeowners were co-conspirators.

2. Homeowners will start to cease paying taxes, and when government entities come after them, will sue the entities, claiming the government entities knew what was going on, are co-conspirators, and can neither evict the homeowners nor extract property taxes from them.

3. MBS investors are themselves going to be accused of being co-conspirators. They will be accused of knowing exactly what was going on, participating in it, and so their investments are not securities, but rather, unsecured loans.

You will learn that in a Ponzi scheme–which this is–there are NO innocent parties.