U.S. Mortgage Servicers in $25B Settlement - Bloomberg
This was a pretty big story today. I have mixed feelings about it.Bank of America Corp., JPMorgan Chase & Co. and three other U.S. banks reached a $25 billion settlement with 49 states and the federal government to end a probe of abusive foreclosure practices stemming from the collapse of the housing bubble.
In what the U.S. called the largest federal-state civil settlement in the nation’s history, the banks have committed $20 billion in various forms of mortgage relief plus payments of $5 billion to state and federal governments.
“There are something like 10 million-plus homes under water to the tune of half a trillion dollars,” said Lynn Turner, the former chief accounting officer at the Securities and Exchange Commission and a managing director at consulting firm Litinomics Inc. in Los Angeles. “I don’t think this settlement, which lets all the bank executives off the hook for filing false documents with courts, is going to make much of a dent.”
The accord announced today in Washington was 16 months in the making, following a move by states to investigate bank foreclosure practices in 2010. The deal will “begin to turn the page on an era of recklessness” that led to the housing bubble, President Barack Obamasaid today in Washington, where he was joined by administration officials and state attorneys general.
First, there was significant pressure on the state attorney generals by the Obama administration to go through with the settlement.
Second, the settlement relieves enormous legal uncertainty by finally settling on a national level on how banks will go through the foreclosure process.
Thirdly, The Obama administration has touts this as further homeowner assistance, in the form of principal reductions, further refinancing options for underwater and current borrowers, and a $2,000 check for people who were recently foreclosed on (there's more, these seemed the most important.
Fourthly, this is another example of the federal government settling with large banks who are guilty of illegal mortgage practices. That will be sure to leave a bad taste in many Americans mouth as more banks are learning they can break the law as long as they can pay off the federal government afterward.
Number #2 is healthy for the real estate market so I'm glad this is over with. Number #3 is fine with me as long as the refinancings are voluntary by both parties and are done in a responsibile way. Number #1 and #4 suck. Both set bad precedents for future cases like this one.
Would love to hear what people think.