What is being called the “National Mortgage Settlement” is out, with a shiny new website featuring a happy couple being ripped off by their servicers. The monetary value breaks down as follows:
$750 million in a payment to the federal government; $4.5 billion in direct payments to the states, of which $1.5 billion will go to those $2,000 checks to borrowers, and $2.75 billion to state foreclosure prevention services like legal aid, mandatory mediation and other programs. So the hard money comes to $5.25 billion. $20 billion in “direct consumer relief”; $3 billion to help current underwater borrowers refinance, and $17 billion in “credits” for principal reductions. HUD estimates that the dollar value of this will come to $32.3 billion in the end, as we’ve discussed. HUD Secretary Donovan has alternately said that a “substantial” amount of this money will come from MBS investor loans, and also that the large majority would come out of bank-owned loans. Also second liens have to be reduced along with firsts at least pari passu (on equal terms).
In addition, officials are touting the nationwide servicing standards that will be ushered in with this deal. Left out of this is the fact that the CFPB now has control over the servicing market, and can regulate national standards all by themselves. In a shell press release drafted for state AGs to fill in the blanks, they tout the servicing piece:
“While this settlement includes significant relief for homeowners, it also puts in place new protections for homeowners in the form of mortgage servicing standards,” ___ said. “That’s not something we’d see if we simply won a money judgment in a trial.”
I love “___ said.” ___ is a good public servant.
There’s a more legitimate press release about the details of the servicing standards. I’ll do a deeper dive on this later, but most of it looks like “banks will do what they are already required to do.” And a lot of it falls in line with the “Homeowner’s bill of rights” announced last week by the President, which of course wasn’t done in a vacuum.
The National Mortgage Settlement site highlights what isn’t covered by the settlement:
Release any criminal liability or grant any criminal immunity.
Release any private claims by individuals or any class action claims.
Release claims related to the securitization of mortgage backed securities that were at the heart of the financial crisis.
Release claims against Mortgage Electronic Registration Systems or MERSCORP.
Release any claims by a state that chooses not to sign the settlement.
End state attorneys general investigations of Wall Street related to financial fraud or the financial crisis.
One giveaway here is that the settlement site says “The agreement settles only some aspects of the banks conduct related to the financial crisis (foreclosure practices, loan servicing, and origination of loans),” when origination was supposed to be among the liabilities not released.
We’ve discussed how some regulators want to “build a second table” and use the securitization claims to go after the conduct of the financial crisis. You are allowed to be dubious of that.
Here’s another nice little feature:
Because of the complexity of the mortgage market and this agreement, which will be performed over a three-year period, borrowers will not immediately know if they are eligible for relief.
The logistics of the settlement will get worked out over the next 30-60 days, and AGs will identify homeowners eligible for relief over 6-9 months. So don’t expect any payouts until then. Banks get to put most of this on the backburner for two-three quarters.
Annoyingly and really disgustingly, the specific details of the settlement have not been released. That’s really a travesty on an issue this big. The public has a right to see this.
I’ll do a post on additional reactions in a bit.