02/14/2012 03:06 pm ET Updated Apr 15, 2012

There's No Bank 'Settlement' -- That Was All Election PR

Was April 1st last week? I mean, what a crazy practical joke our federal government and state AGs just tried to play! What a parade of press conferences, all touting a deal to trade some $25 billion in mostly more accurate accounting for some kind of release of origination, servicing and foreclosure fraud. But it turns out the deal's not real.

Jeff Horowitz and Kate Davidson have the story for American Banker (bold always mine):

More than a day after the announcement of a mammoth national mortgage servicing settlement, the actual terms of the deal still aren't public... That's because a fully authorized, legally binding deal has not been inked yet.

Horowitz and Davidson then dryly note: "The implication of this is hard to say." They don't choose to pronounce, because people they quoted disagreed about what the lack of a fully negotiated, executed contract meant. First Horowitz and Davidson quote the deal boosters:

Spokespersons for both the Iowa attorney general's office and the Department of Justice both told American Banker that the actual settlement will not be made public until it is submitted to a court. A representative for the North Carolina attorney general downplayed the significance of the document's non-final status, saying that the terms were already fixed.

And then Horowitz and Davidson inform us about what's really going on:

Other sources who spoke with American Banker raised doubts that everything is yet in place. A person familiar with the mortgage servicing pact says that a settlement term sheet does not yet exist.

Really? So what do they have?

Instead, there are a series of nearly-complete documents that will be attached to a consent judgment eventually filed with the court.

What does "nearly-complete" mean? 80 percent? 90 percent? Maybe all they've got left is the very hardest 5 percent left? Getting final language -- particularly when you're not working from a term sheet -- is not an easy, ministerial step. The final wording solidifies the precise deal. And if you're not working off a term sheet, then you're negotiating a deal and final language at the same time. That's harder than just finalizing language. The banks/Feds/States are just not done; there's no deal yet.

Horowitz and Davidson offer one more tidbit showing the deal's not yet done.

That truly final version will include things such as servicing standards, consumer relief options, legal releases, and enforcement terms. There will likely be separate state and a federal versions of the release.

"Will likely be"? They haven't nailed down the liability release yet? The liability release is one of the biggest deal points; that's what the banks are buying. I mean, consider the drama around NY AG Eric Schneiderman's MERS suit. The scope of the release he was granting the banks was his make or break deal point. Schneiderman insisted he wouldn't sign unless he could bring his MERS suit and name all the banks as defendants if he chose (he's only suing three of them so far.) If the federal and state liability releases are going to be the same, then the "promise" made to get Schneiderman to sign on was a lie. The banks wanted the MERS suit done and gone; the feds do what the banks want; no way an identical fed-state liability release lets Schneiderman keep his MERS suit intact.

Bottom line, NY AG Schneiderman may be confronted with final, binding language that doesn't honor the deal point he fought hardest for. Luckily, now that we all know he was lied to, he can walk away from the "deal." That is, as of now Schneiderman was lied to; he can't count on the liability release being as promised. (Can you say "fraud in the inducement?") Based on that lie alone, since it went to his core deal point, Schneiderman could fairly walk now if he wanted. Or he can walk as the language approaches final and the lie is confirmed. If he walks, we all know what it means: the banks and their Federal allies lied to him. In fact, there may be other crucially important promises about deal terms that were also lies, well beyond the liability release.

Beyond the false promises of the banks and the Justice Department, Secretary Donovan and Iowa AG Miller, the holdout AGs were being squeezed by Team Obama too, as Horowitz and Davidson report:

Some who talked to American Banker said that the political pressure to announce the settlement drove the timing, in effect putting the press release cart in front of the settlement horse.

See, everyone in the know knows there's no deal yet, just promises from the ever-so-trustworthy bankers and the Feds that cater to them. But don't take Horowitz and Davidson's excellent reporting as the only proof. Consider Bank of America's press release. Start with the headline:

Bank of America Announces Agreements in Principle With Federal and State Authorities on Mortgage Matters

What are "Agreements in Principle"? To me, "Agreements in Principle" sounds an awful lot like "nearly-complete agreements" that fundamentally don't embody the final deal. BofA's headline confirms American Banker's story that there is no deal as of yet, that the PR push was precisely that: election driven PR -- not policy, not accountability, not help.

As if you had any doubt left about that, if you were thinking of taking the North Carolina AG seriously when he "downplayed the significance of the document's non-final status, saying that the terms were already fixed", well, consider that bank analysts don't consider the deal reliably done on the talking points being chattered at the public:

Whatever the reason for the document's continued non-appearance, the lack of a public final settlement is already the cause for disgruntlement among those who closely follow the banking industry. Quite simply, the actual terms of a settlement matter.

Right: Quite simply, the actual terms of a settlement matter.

As a result, when AGs Schneiderman, Biden, Masto, Coakley, Harris and any of the other hold out, justice-focused AGs see the final language, or if before that they discover the promises made them by the bankers and their Feds have been broken, they all can and should walk. They must walk.