Economy Watch: Robo-Signing Settlement Finalized

By Dees Stribling, Contributing Editor

On Monday, the U.S. government filed formal settlement papers in federal court regarding the massive mortgage lending abuse case, thus breaking down which of the five miscreant mortgage lenders pays how much. Bank of America Corp. is paying the largest amount, to the tune of $2.4 billion in cash, along with $7.6 billion in aid to troubled borrowers and about $950 million in refinancing aid. On top of that, the bank will pay $1 billion to settle allegations that Countrywide Financial, which Bank of America acquired in a fit of bad timing in 2008, was up to no good when it made many of its mortgages during the housing bubble of the mid-2000s.

The second-largest payment will be from J.P. Morgan Chase & Co.: $1.1 billion in cash, $3.7 billion in aid, and $540 million in refinancing. Next is Wells Fargo & Co., on the hook for $1 billion in cash, $3.4 billion in assistance and $900 million in refinance aid. Citicorp and Ally Financial, the other two major lenders named in the legal action taken by the federal government and 49 state attorneys general, will be paying lesser amounts.

To give these numbers some perspective, revenues for Bank of America totaled $93.5 billion in 2011. J.P. Morgan Chase’s revenues were $97.2 billion last year, while Wells Fargo’s 2011 revenues totaled $80.9 billion. The settlement might be a bump in the road for the financial behemoths, but not a very big one.

Mass transit use near all-time high in ’11

The price of gas, so recently rising to teeth-gnashing levels, went up slowly but steadily during most of 2011, and the reaction of the American driving public reflected that irritating fact in a number of ways. One, for example, was increased ridership on public transit in a nation notoriously adverse to the practice outside of certain dense urban areas.

On Monday, the American Public Transportation Association (APTA) reported that Americans took 10.4 billion trips on public transportation in 2011, the second-highest annual ridership since 1957. Only ridership in 2008, when gas rose to average more than $4 a gallon nationwide, surpassed last year’s ridership—which further demonstrates that people will cut down on car usage somewhat, if pressed by rising costs.

But the price of gas may not be the only factor. “Two top reasons for the increased ridership are higher gas prices and in certain areas, a recovering economy with more people returning to work,” APTA president and CEO Michael Melaniphy said in a press statement. “Since nearly 60 percent of trips taken on public transportation are for work commutes, it’s not surprising to see ridership increase in areas where the economy has improved.”

Fed Plans Stress-Test Publicity

In other banking news, later this week the Federal Reserve will release—as in make public, which it hasn’t before—the results of the latest stress tests conducted on a variety of U.S. banks. According to the New York Times at least, the tests will show that banks have made progress their preparedness to survive adverse economic conditions, should such conditions suddenly return.

The gloom-and-doom scenario assumed by the stress tests, which the central bank detailed late last year, posited certain awful economic conditions. For example, that the Dow Jones would tank by 50 percent at least, and that housing prices would decline by another 20 percent on top of the price drops they’ve experience since 2007. Also, just to put some rotten icing on the rotten cake, U.S. unemployment would shoot up to 13 percent. Considering all that, could the bank survive? That’s what the stress test aims to find out.

Wall Street meandered around on Monday, ending mixed. The Dow Jones Industrial Average gained 37.69 points, or 0.29 percent, and the S&P 500 gained a scant 0.02 percent. The Nasdaq lost 0.16 percent.