Little Hope for Reform in Foreclosure Settlement Negotiations

Citizen Wealth Financial Justice Foreclosure

New OrlFannie and Freddieeans The industry spins the numbers differently each month.  Foreclosures are rising, but somehow housing markets are being revived by refinancing.  Little of it makes sense and often the information is contradictory, but the bottom line is that housing is still in dire straits across the country.  The home mortgage modification program has been a huge and unmitigated failure noted by almost no one but the millions of homeowners who have hoped and then frustratingly lost their homes or are still hanging out in limbo.

A small glimmer of hope had been offered by the lawsuit filed against banks and mortgage servicers by a small army of state attorneys general.  Today’s Wall Street Journal reported on the progress of the discussions including the government’s proposal for a $20 billion dollar hit.

Under the administration’s proposed settlement, banks would have to bear the cost of all writedowns rather than passing them on to other investors. The settlement proposal focuses on pushing servicers who mishandled foreclosure procedures to eat losses, by writing down loans that they service on behalf of clients. Those clients include mortgage-finance giants Fannie Mae and Freddie Mac, as well as investors in loans that were securitized by Wall Street firms.

Bank executives say principal cuts don’t necessarily improve payment patterns, and have told other parties involved in the talks that principal reductions could raise new complications. First, it will be difficult to determine who gets reductions and who doesn’t. And even if banks agree to a $20 billion penalty, the number of mortgages that can be cured with that number is limited, one of these people said.

If a single settlement can’t be reached, different federal agencies could seek smaller penalties through regular enforcement channels, and banks could face the prospect of separate civil actions from state attorneys general.”

$20 Billion is a nice number for a penalty, but reading the bankers’ whines between the lines, we can already tell that this will be a very sloooowww and drug out process, not the least of which will involve coming up with the assessment on home value and writedown amounts.  There is no way to read the various arguments that bankers are making without seeing them as trial balloons they are letting go to see if any work.  Furthermore the notion of multiple settlements with different federal agencies meting out different penalties sounds like pure and simple chaos, and certainly nothing that will help homeowners.

Hope springs eternal, as the saying goes, so keep fingers crossed, but this early preview indicates that any hope for a happy ending here seems unlikely in another horror show feature.