From Stark
After months of closed-door negotiating, a massive, multi-billion-dollar deal between big banks and state and federal regulators has been announced to partly resolve legal issues surrounding the questionable practices that have prevailed in documenting home mortgages and foreclosures.
But after a quick scan of initial news reports, it seems evident to me that the real impact of this deal on both homeowners and banks won’t be clear for months.
The deal itself is too complex to enable an expert–much less you or me–to quickly develop a well-informed point of view on what it all means. And there is no quick way to rework millions of mortgages caught up in the mortgage documentation mess.
UPDATE: Here’s a Q&A from Associated Press that offers the best overview I’ve seen at this point.
The terms of this deal do provide evidence that government regulators are willing to push much harder on these kinds of matters than they were 10 years ago, when Household International agreed to a $484 million settlement. That deal included no reductions on loan principal, only minor changes to loan terms, and nothing for those who had already lost homes in foreclosure. The deal also required individual homeowners to sign away their rights to sue the company in return for a modest share in the money that was distributed.
The latest settlement will offer a cash consolation prize of as much as $2,000 to those who lost their homes due to improper foreclosure practices. Some mortgage borrowers will qualify for principal reductions. The states did not bargain away their right to file criminal charges if they choose to pursue them. And borrowers who have kept their mortgages current, as well as those who are delinquent, may get some help.
But in this account in the Washington Post, debt counselors working with distressed borrowers don’t seem overly impressed by the amount of relief that people will get.
At the Naked Capitalism blog, Yves Smith picks the deal to pieces. Smith is among those who warned that financial Armageddon was heading our way, at a time when most government officials and big banker types were reassuring us that the fallout from “the subprime mortgage problem” posed no threat to the banks or the larger economy. She continues to call down fire and brimstone on the banking system and the people who are paid to regulate it.
Here is Washington Attorney General Rob McKenna’s take on the deal and its impact on this state.
I must say John a very good reflection of all sides, thanks for the balance.
AFY!!theheelotsheepdog!!!
They were right,
the sub-prime mortgage industry itself didn’t cause the downfall of anyone
except maybe the homeowner.
It was the massive derivatives insurance market that did everyone in
and the fraud committed by ratings houses that lured conservative investors worldwide to their deaths
on junk securities rated blue chip in exchange for broker’s cash.
There’s nothing inherently bad about sub-prime lending
since it simply refers to the lack of FHA income-to-debt guidelines and nothing else.
Lose your house to an illegal foreclosure?
Too late for you and $2,000 won’t help any.
But now that the wrongdoing cat is officially out of the bag,
loan servicers have a stronger motivation to play according to the law and/or work with the defaulting borrower to some better resolution.
And as the economy picks up and people get back to work,
Thanks President Obama,
the foreclosure issue will take on less and less importance.
Here’s a different opinion:
“It’s hard to imagine a less-deserving group of victims: people who gambled during the housing bubble by purchasing homes with borrowed money that they knew or should have known they couldn’t afford, but who are now able to stay in the homes they should have never bought because of what amounts to paperwork errors on the part of the nation’s big banks.
But that’s essentially what went down yesterday, thanks to the Obama administration’s latest re-election gimmick — the nationwide mortgage-foreclosure settlement….
…almost all of the “logic” behind the deal isn’t logic, but a combination of half truths and outright lies. Even worse, the settlement will likely prolong the housing slump and set the stage for it to happen again….
Read more: http://www.nypost.com/p/news/opinion/opedcolumnists/deadbeat_bailout_LBRdYWq9BHXu4kIFTgHL1M#ixzz1lzqEqilY
AFY!!theheelotsheepdog!!!
Fine. Here are some inconvenient truths:
1. Republican Party AGs (does the name McKenna ring a bell?) signed off on this deal and were involved in it from the beginning.
2.Those greedy mortgage borrowers were unsophisticated fellow Americans who in many cases were given misleading information by the representatives of major financial institutions. They were led to believe that they could refinance and withdraw equity as housing prices continued their seemingly inexorable upward march. Should they have known better? Yeah. But should the banks be allowed to keep all the money they made by selling these loans? Shouldn’t the banks have known better?
3. This settlement wasn’t even about the tactics used to sell the mortgages. It was about the quick-and-dirty system that the banks used to process the foreclosures of people who fell behind on their mortgages. Rob McKenna, among others, told us that mortgage servicers were not following state law when they processed these foreclosures. That made it difficult or impossible for distressed homeowners to contact an actual person to arrange some kind of arrangement to let them get caught up on their loan.
Here’s the joint statement that state AGs issued when they began the probe that led to the settlement announced Feb. 9:
http://www.atg.wa.gov/uploadedFiles/Home/News/Press_Releases/2010/ForeclosureAffidavitJointStatement.pdf
Here is a press release from Rob McKenna that explains how apparently illegal foreclosure processing practices hurt this state’s homeowners:
http://www.atg.wa.gov/pressrelease.aspx?id=27748
Here’s a relevant article that puts the settlement in context: http://www.counterpunch.org/2012/02/10/foreclosure-settlement-just-another-link-in-a-long-chain-of-corruption/
IMHO; Band aides does not a cure make:
“While Fannie Mae, Freddie Mac, and private subprime lenders have deservedly garnered the bulk of attention and blame for the mortgage crisis, other federal programs also distort our mortgage market and put taxpayers at risk of having to finance massive financial bailouts.
The most prominent of these risky agencies is the Federal Housing Administration (FHA). The FHA currently backs an activity portfolio of over $1 trillion. With an economic value of only $2.6 billion, representing a capital ratio of 0.24 percent, relatively small changes in the performance of the FHA’s portfolio could result in significant losses to the taxpayer….
To protect the taxpayer and the broader economy, the FHA should be scaled back immediately, and an emphasis should be placed on improving its credit quality. At the same time, the agency should be placed on a path to ultimately be eliminated, with its risk-taking being transferred back to the private sector.
http://www.cato.org/pub_display.php?pub_id=14069
Those who pretend that these recent actions solved our current & real problems will be only taking their eye off the ball!
AFY!!theheelotsheepdog!!!
Fannie and Freddie never dealt in sub-prime paper buying
until the taxpayer’s distress and the bailouts themselves demanded they both take on toxic assets
as part of the task of freeing-up capital for lending
and taking the risk off the investor.
Yes. People are losing sight of the fact that yesterday’s deal was about the comparatively narrow issue of loan documentation. And your Cato pals are right: For decades, our government has provided a welter of programs to encourage not just home ownership but borrowing to pay for home ownership. It’s hard to imagine a more bipartisan project than this. What would the housing market look like without all these incentives and subsidies?
But it’s also worth pointing out that if loan documentation issues can be cleared up, it will make it easier to clear up some of the backlog of distressed propertie. That is worth doing–if it works right.
One thing about this problem is that it has been bi-partisan!
Will this help allow the housing market to recover or possibly delay its recovery?
Does this help the housing market recover without just creating another bubble in the future?
If we finance underwater mortgages aren’t we just delaying the market solution which requires a market of real values?
The answer to what the market would look like without gimmicks and fake enticements; FREE!
AFY!!theheelotsheepdog!!!
I do hope Jim Cramer is right:
“Most efforts to solve the housing glut have led to naught, largely because the banks and state and federal governments have been have so antagonistic to each other.
That’s why this $25 billion settlement between the federal and state government and five big banks and mortgage services, over the outrageous foreclosure procedures these institutions used during this period, is so important to the progress that’s so needed for this incredibly important issue, the one that precipitated the U.S. downturn and remains at the epicenter of the tepid pace of the recovery….
It will accelerate foreclosures to clean out inventory and speed up short sales to get past the big logjam for underwater home sales….
http://www.thestreet.com/story/11411083/1/cramer-this-mortgage-settlement-is-huge.html
We will see…
AFY!!theheelotsheepdog!!!
Here’s a look at the potential impact provided by Calculated Risk: http://www.calculatedriskblog.com/2012/02/mortgage-settlement-and-negative-equity.html
Indeed. But part of the problem is the sheer amount of labor involved in working out new terms for millions of distressed loans. Back in the bubble days, the lenders set up mass production systems to make mortgage loans and securitize them for investors. They made lots of money doing that. Now they are trying to throw that whole engine into reverse: Take back the sketchy bonds, rewrite the sketchy mortgages behind those bonds. But doing that is a lot more labor-intensive, if it’s done right. Somebody has to sit down with each and every borrower and go over financial circumstances to see if something can be worked out. And this process is not exactly lucrative for the financial institutions…
I’m not a big fan of the settlement. Those who received hundreds of billions in bailout funds to help them through problems largely of their own invention, now get to buy some level of immunity through investing a small fraction of thier federal largesse in helping the little guy. Not much to brag about, though the AG’s are hard at it. Florida and California AG’s alone claim their states will receive $26+ Billion, which challenges my math skills; given a total settlement of $25B, and 49 states all receiving some funding. Here’s a bit more of my take, for those interested:
http://bonafideleadership.wordpress.com/2012/02/10/bad-banks-and-a-good-bank/
Actually, Dan, it seems to me that the banks bought very little immunity for $25 billion. Individual mortgage borrowers can still sue them for abuses, and this includes class action litigation. The immunity they did buy doesn’t seem to cover much besides the threat of civil litigation from the AGs themselves on the narrow issue of loan documentation. The AGs also reserved the right to file criminal cases if they find that level of wrongdoing. But you’re right: This deal is not especially burdensome for the banks, and their stock prices showed a nice uptick when the deal was announced. It was just a tick, not a big spike. When the states announced the Household International deal in 2002 (or, more precisely, when the news leaked out among investors before the actual press conferences) the stock spiked 25 percent because they really did buy almost total immunity.
As I note, it’s only partial immunity, but it’s significant, especially at the state level. And it is but a fraction of what the banks received to help them in their distress; by comparison, the little guy is left twisting in the wind…
“This was a relatively cheap resolution for the banks,” said Simon, the mortgage head at Pimco, which runs the world’s largest bond fund. “A lot of the principal reductions would have happened on their loans anyway, and they’re using other people’s money to pay for a ton of this. Pension funds, 401(k)s and mutual funds are going to pick up a lot of the load.”
“Think about this, you tell your kid, ‘You did something bad, I’m going to fine you $10, but if you can steal $22 from your mom, you can pay me with that,’ ” Simon said yesterday in a telephone interview from Newport Beach, California
AFY!!theheelotsheepdog!!!