Banks in $25B deal to settle foreclosure abuses How will this affect the Short Sale BIZ?

As reported on CBSNEWS.COM

Banks in $25B deal to settle foreclosure

"The agreement, which the U.S. Justice Department announced Thursday after more than 16 months of negotiations involving all 50 U.S. states, federal authorities and the banks, provides financial relief for homeowners and toughens standards for how financial firms service mortgage loans. Joining the deal are the country's largest mortgage servicers: Ally Financial, Bank of America (BAC), Citigroup (C), JPMorgan Chase (JPM), and Wells Fargo (WFC).

Under the terms of the deal, mortgage servicers must allocate $20 billion to various types of mortgage relief for borrowers. At least $10 billion of that total will go toward reducing the principal for borrowers who are behind, or at risk of defaulting on, their loans at the time of the settlement and who owe more on their mortgages that their homes are worth. A minimum of $3 billion will go toward helping homeowners who also are "underwater," but current on their loans, refinance at lower interest rates. Up to $7 billion will be allocated toward offering other forms of aid, including forbearance of principal for unemployed borrowers, "short sales," and financial assistance for homeowners whose homes are foreclosed. In addition, loan servicers must pay $4.25 billion to the states and $750 million to the federal government."

I think this settlement will have virtually no impact on short sales. It is largely cover for the "plaintiffs" and "defendants".

Why? Because most of this will not be incremental, I think. Meaning, it waives debt that effective has already been waived or would be anyway. In any case, it's tiny compared to total. The settlement is around 3% of underwater mortgage debt.

Two examples from DSNews this morning:

* $3.5B to waive deficiencies on foreclosed homes (Largely meaningless IMHO)

* $12B in "principal reduction and short sales". A "typical" $100K deficiency is being settled today for well under 20%, so the other 80% is already being waived, but is probably being counted here (Not incremental)

With 1 minute of analysis, we can see that $15.5B may well have no impact, because it's not incremental.

Keep working team, doing what we do. We are providing the real settlement.

Replies

Jim Stewart February 13, 2012 at 8:48am

Awesome commentary from Dylan Ratigan.

http://www.ritholtz.com/blog/2012/02/on-the-mortgage-settlement-the...
William "Andy" Alford February 12, 2012 at 8:58am

Here's the website for the settlement: http://www.nationalmortgagesettlement.com/help.
Jeffrey Burnham February 12, 2012 at 8:24am

Remember when "W" send everyone in the US a couple of hundred to stimulate the economy?? This "settlement" will have the same effect. The banks get off the hook again!
Jim Stewart February 12, 2012 at 6:28am

Minimal impact at best. This "settlement" is mainly cover for Obama to make it look like he's doing something about housing (considering the rest of his efforts have been abysmal failures) and for the banks to avoid future, more costly litigation. Considering the total amount of underwater mortgages is likely in the trillions, 25 billion (and only 5 billion in cash penalties) is chump change to the banks. A rounding error. Not to mention the fact that this "settlement" only affects loans owned by five banks and excludes anything owned by Fannie and Freddie, the true behemoths in the room.
- Cody Lampariello > Jim Stewart February 13, 2012 at 9:43am
  
  I love how people try and score political hate points when they have no idea what they are talking about. This lawsuit was actually negotiated between a bi partisan group of state AG's and the banks with the backing of the DOJ. I agree it is nothing special but let's keep things in perspective.
  - Jim Stewart > Cody Lampariello February 13, 2012 at 9:52am
    
    Not political hate points at all. I've rooted from day one for Obama to solve the crisis but he's been no better than the republicans at giving bail out money to the banks. The proper "perspective" on this is that it's a $25 billion bandaid on a $1 TRILLION problem. It also essentially rewards forgery, perjury and loan fraud on the part of the banks since they will now be held harmless for robosigning.
    - Cody Lampariello > Jim Stewart February 13, 2012 at 9:56am
      
      That statement I completely agree with.
Cody Lampariello February 10, 2012 at 12:04pm

I actually wrote a blog post about this because I think it is going to be very damaging to our market. Not because everybody gets their mortgage written down it will have very minimal effect on the market in that manner considering the average write down will be 20K..that's garbage. It will be damaging because most people are very uninformed and will not look at the facts regarding minimal help.They will wait to see if they are getting assistance in the form of principal reduction which even if they recieve it will probably not help instead of pursuing the path they should be taking which in most cases is a short sale.

All the while they will still be heading to foreclosure...I hope it turns out different. See below for a more in depth explanation.

http://www.exclusivetitlecompany.com/2012/02/10/26-billion-dollar-w...
Michael Schneider February 10, 2012 at 4:33am

I think this settlement will have virtually no impact on short sales. It is largely cover for the "plaintiffs" and "defendants".

Why? Because most of this will not be incremental, I think. Meaning, it waives debt that effective has already been waived or would be anyway. In any case, it's tiny compared to total. The settlement is around 3% of underwater mortgage debt.

Two examples from DSNews this morning:

* $3.5B to waive deficiencies on foreclosed homes (Largely meaningless IMHO)

* $12B in "principal reduction and short sales". A "typical" $100K deficiency is being settled today for well under 20%, so the other 80% is already being waived, but is probably being counted here (Not incremental)

With 1 minute of analysis, we can see that $15.5B may well have no impact, because it's not incremental.

Keep working team, doing what we do. We are providing the real settlement.

This reply was deleted.