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The Wall Street Journal
reports U.S. Pushes
Mortgage Deal
The Obama administration is
trying to push through a settlement over mortgage-servicing breakdowns that
could force America's largest banks to pay for reductions in loan principal
worth billions of dollars.
Terms of the administration's proposal include a commitment from mortgage
servicers to reduce the loan balances of troubled borrowers who owe more than
their homes are worth, people familiar with the matter said. The cost of
those writedowns won't be borne by investors who purchased mortgage-backed
securities, these people said.
If a unified settlement can be reached, some state attorneys general and
federal agencies are pushing for banks to pay more than $20 billion in civil
fines or to fund a comparable amount of loan modifications for distressed
borrowers, these people said.
But forging a comprehensive settlement may be difficult. A deal would have to
win approval from federal regulators and state attorneys general, as well as
some of the nation's largest mortgage servicers, including Bank of America
Corp., Wells Fargo & Co, and J.P. Morgan Chase & Co. Those banks
declined to comment.
A settlement could help lift a cloud of uncertainty that has stalled the
foreclosure process since last fall. Economists have warned that foreclosures
need to proceed for the housing market to continue on a path to recovery.
It's unclear how many borrowers would benefit from a deal.
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.
How Far would the Money Go?
Let's assume this proposal is adopted. How many would benefit? The answer of
course depends on the criteria. However, but the goal seems to be to help
those in distress, so let's use those currently in distress as a starting point.
Total Non-Current and Delinquent Loans
The above chart and following stats from the LPS Mortgage
Monitor,
January Observations
·
As of
December 2010 there were 2,117,845 90+ day delinquent loans.
·
As of
December 2010 there were 2,555,799 30-60 day delinquent loans.
·
As of
December 2010 there were 2,195,940 in foreclosure.
·
As of
December 2010 there were 2,195,940 in total non-current loans
Those in foreclosure are clearly too far gone to help. If we take $20 billion
and spread it out over the rest, we can calculate mortgage principal
reductions several ways.
·
$20
billion divided by 2,555,799 would give everyone 30-60 days late a principal
reduction of $7,825
·
$20
billion divided by 2,118,845 would give everyone 90+ days late a principal
reduction of $9,439
·
$20
billion divided by both groups would give everyone a principal reduction of
$4,278
This is supposed to help?
By the way, history suggests once someone gets to 90+ days late, the
situation is hopeless. Even if the $20 billion was entirely thrown at those
30-60 days late, we are talking about principal reductions of under $8,000.
The moral of this story is $20 billion isn't what it used to be.
Mish
GlobalEconomicAnalysis.blogspot.com
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