The views expressed in any article published in this blog are the author's own and do not necessarily reflect the views of Joseph Foster or Bob Lupoli.

Wednesday, February 22, 2012

Mortgage Deal: A drop in the bucket, false hope!

Joe: see some key paragraphs from this article below regarding the mortgage settlement. I highlighted the key points on the deal.
1.       A drop in the bucket
2.       New York State – only 25,000 homeowners helped
3.       Precedent – the government forcing banks to lower principal
4.       False hope – true…
Regarding #3, in the Joe Nocera article (link below) he wrote; "For those who mainly care about seeing the banks punished, there will be other opportunities. The litigation relief the banks won is surprisingly narrow. States and the federal government will still be able to sue for lots of other abuses, including lying about the quality of mortgages that were bundled in toxic mortgage-backed securities."

Seems to me, this was the time to make the deal has passed. Since Timothy Geithner was, "convinced the program wouldn't be overhyped or overly punitive".  -Bob

HUD boss Shaun Donovan jumps into President Obama mortgage melee
GLENN THRUSH | 2/21/12 11:35 PM EST
In early February, five major banks, led by Bank of America and JPMorgan Chase, inked a settlement with 49 states that would force the banks to pay $5 billion in cash relief for faulty and sometimes fraudulent documentation of mortgages that cost underwater homeowners untold billions.

As part of the deal, orchestrated by Donovan and senior DOJ officials, borrowers who got a raw deal would get up to $35 billion in relief, about $2,000 per consumer who can document misdeeds on the part of the banks.

That’s a drop in the bottomless bucket of the nation’s housing crisis. But for the first time, the banks set aside their vehement opposition to writing down the principal of loans — and that could be a big deal if it becomes a precedent.

 “The settlement is not nearly enough … We’re looking at it helping only about 25,000 homeowners, all told, in New York state,” said Christie Peale, executive director of the Center for NYC Neighborhoods, a nonprofit housing assistance organization that once had Donovan on its board.

“But it’s an important step because we are talking, for the first time, about banks being compelled to lower the principal on people’s mortgages. … If we can prove that it works, it might change the direction of the way we deal with this crisis as a country,” added Peale, who has never met the secretary.

The plan has garnered mixed reviews. Progressive groups have savaged the deal as too little too late, with some Occupy protesters urging state attorneys general not to sign it. The banking industry, for the most part, shrugged, and New York Times columnist Joe Nocera summed up the prevailing view in the business press with a blog entry entitled “Two Cheers for the Settlement.” (see: Fire Joe Nocera article)

Donovan, who declined to comment for this story, has called the approach “catalytic,” if not a cure-all, in recent interviews.

During the initial round of settlement talks, Geithner opposed the idea of compelling banks to write down principal on mortgages because he thought it would give homeowners “false hope.” He claimed that write-down supporters were overselling the number of homeowners such an approach could actually help, according to administration officials.

A former administration official privy to the internal deliberations said the two men always showed respect to each other during the discussions, but Geithner forcefully argued that letting underwater homeowners off the hook would create a moral hazard.

Donovan, 46, a redheaded Harvard-trained architect with a sunny, earnest manner, pressed his case and eventually convinced Geithner that the program wouldn’t be overhyped or overly punitive. DOJ negotiators led by Associated Attorney General Tom Perrelli made the same case to Geithner.

By late 2010, Geithner was publicly supporting the idea of write-downs, telling a congressional oversight panel “there is a pretty good economic case” to be made for the strategy, even though he remains wary of its ultimate impact.

No comments:

Post a Comment