Dividing the Mortgage Settlement Dollars

Details are still forthcoming about the settlement between the federal government and attorneys general and the five largest servicing banks but one interesting twist that is already emerging is how the dollars are being divvied up and distributed. The total number touted, $25 billion, includes both dollars paid in cold cash to the states,  dollars paid in cold cash to wronged consumers, and "credit" for reducing principal or refinancing. The estimates I've seen suggest only $5 billion is in either of the cash categories, with the relief to any particular consumer likely to be $1,500 to $2,000. That suggests that $20 billion could be available for rewriting loan terms to help consumers.

But, the effects of the settlement are likely going to vary by state. Iowa's Attorney General, Tom Miller, who led the 50-state investigation, has described a division of Iowa's money  that would look quite different from the above-described distribution. He says Iowa's slice of the total $25 billion is likely to be $40 million. Make sense to me; Iowa has a small  population. But of that estimated $40 million, Iowa will get $15.3 million in cold hard cash.  That is 38% of Iowa's relief coming in hard dollars to the state, whereas $5 billion of the $25 billion estimated for the nation suggests a 20% cash payout. Iowa is taking almost twice the percentage of its haul in cash as in "credit" for principal write-downs/refinancings. Then there is the issue of what the states are going to do with their cash. Attorney General Tom Miller suggests the money should go to the groups directly aiding homeowners in trouble. But other states have other ideas. Missouri's governor has proposed using at least a chunk of its money to support higher education. Read about it here, which also contains a list of the cash payment going to each state. And Ohio seems to be planning to use at least some of its cash to demolish blighted property. These variations in how much cash states get and what they'll do with it are just one reason that consumers may have to struggle to make sense of this settlement and benefit from it.

Comments

[rjs]

scribd's here: http://www.nakedcapitalism.com/2012/02/settlement-breakdown-by-state-plus-other-official-propaganda.html

there's good state table here: http://www.snl.com/InteractiveX/Article.aspx?cdid=A-14188372-11823

but yves's latest post points out the papers havent even been signed...and the immunity is much broader than we had been led to believe...

[rjs]

here's the way i wrote it up:

the lion's share of this deal is a three year $17 billion "commitment" to "homeowner relief" by the 5 servicers, which is expected to be through principal reduction, and since those loans are effectively owned by the holders of the mortgage backed securities those loans are pledged to, it will be the investors in those MBS that take the hit, not the banks; furthermore, since the total underwater equity in the US is estimated at $700 billion, this $17B is less than 3% of the total, and will like only be distributed to one million of the approximately 11 million borrowers who are underwater; loans outstanding that are owned or controlled by fannie & freddie, the majority of the total, will not be participating in this settlement...the servicers also "commit" an additional $3 billion to refinance underwater homes at 5.25%, a lower mortgage rate than they are now paying...both the principal reduction and the refinancing aspects of this settlement tend to help the banks, because they encourage underwater homeowners to stay current & keep making house payments; as we've seen, over 6 million, or one in eight indebted homeowners, have already stopped paying on their mortgages...there will also be $5 billion in direct payments ($4.25 billion to the states and $750 million to the federal government)...of those funds to the states, about $3 billion will be distributed to whatever portion of the approximately four million homeowners who have already been fraudulently foreclosed on between 2008 and 2011 who apply and are determined to be eligible; this is expected to amount to a payment of between a $1500 and $2000 each for those who've already had their homes taken illegally...the remainder will go to the state attorney generals offices, to defray their expenses in managing this program…
embedded links for that are here:

http://marketwatch666.blogspot.com/2012/02/notes-on-fraudclosure-bailout.html

[Tom Stone]

This is simple to understand. It benefits the big banks and the campaign coffers. And have you considered substituting "American Citizens" for "Consumers" in your vocabulary? It might have an effect on how you percieve things.

[Richard F. Kohn]

Do you think the presence outside Des Moines of Wells Fargo (nee Norwest) principal servicing office had anything to do with Mr. Miller's activities?

[Mike Dillon]

Mr. Miller has had at LEAST a decade to study Mortgage Servicing Fraud issues. I say this because I have copies of consumer complaints regarding Fairbanks Capital Corp., n/k/a Select Portfolio Servicing, that his office received back in 2002. I would imagine that his office received similar complaints about EMC Mortgage, Countrywide (FTC v. EMC/Bear Stearns and FTC v. CWHLS/BACHLS) Litton Loan Servicing, Ocwen Loan Servicing, Saxon Mortgage and the rest of the bad actors in this game.

Until criminal charges for fraud, extortion, grand theft larceny and racketeering are brought against even a single entity, this is simply more cost of doing business for servicers and simply will not stop.

Richard Zombeck, of the Huffington Post, ShameTheBanks.org and Home Preservation Network had a great quote on the Jeff Santos show a few months ago which went something like, "If I'm robbing houses and I get caught, and all I have to do when I get caught is give up 10% of the stolen goods, I'm probably not only going to KEEP robbing houses but I'm going to hire a crew."