The Top Twelve Reasons Why You Should Hate the Mortgage Settlement – Yves Smith
Yves Smith asked that this be cross-posted and I am happy to do it. Â
I’m certainly not going to write about it. Â I haven’t even read her piece yet and I’m not sure I’m going to. Â But, by all means, feel free. Â Click link below to read the rest on Yves’ site. Â I can’t do what she does and respond to this stuff with thoughtful and indignant outrage.
Here’s the deal… I wrote a year ago when the whole AG/banker political circus started that I was not going to follow it, not going to write about it, and certainly not care about it. Â It was a colossal waste of time by childlike participants who set out to embarrass themselves and succeeded. Â Now everyone is upset that it didn’t turn out to be more. Â Why? Â It’s to be ignored… unless anyone feels like wagering on any of its promises, in which case, I’m your huckleberry and we should talk.
Remember how the whole thing started… AGs: We want $30 billion. Â Banks: No, $5 billion. Â AGs: okay $20 billion. Banks: No, $10 billion. Â AGs: $20 billion. Â Banks: $10 billion. 20… 10… 20… 10… 20… 10…
Like watching two 9 year olds. Â No math involved. Â Just a stupid tug of war over nothing. Â Might as well have set the $20 BILLION ON FIRE! Â That’s not a joke, I mean it… set it on fire for all the impact it will have… assuming it ever gets spent, and I’ll bet a whole bunch that unless the money is going to banks, it’s not getting spent.
Remember HAMP was to be $75 billion… then reduced to $50 billion… then reduced to $37 billion. Â And we spent $2.4 billion and essentially all of that went to servicers. Â Oh, but I’m sure the money is going to be handled very efficiently. Â Just watching the jockeying is enough to turn my stomach. Â Children… badly behaved children. Â And Obama you have the leadership skills of a gerbil, the instincts towards transparency of a criminal. How dare you trumpet this as a success… treat the American people like their idiots… you should be ashamed.
Sorry, it’s Yves’ time…
As readers may know by now, 49 of 50 states have agreed to join the so-called mortgage settlement, with Oklahoma the lone refusenik. Although the fine points are still being hammered out, various news outlets (New York Times,Â Financial Times,Â Wall Street Journal) have details, withDave Dayenâ€™s overview at FiredoglakeÂ the best thus far.
The Wall Street JournalÂ is also reportingÂ that the SEC is about to launch some securities litigation against major banks. Since the statue of limitations has already run out on securities filings more than five years old, this means theyâ€™ll clip the banks for some of the very last (and dreckiest) deals they shoved out the door before the subprime market gave up the ghost.
The various news services are touting this pact at the biggest multi-state settlement since the tobacco deal in 1998. While narrowly accurate, this deal is bush league by comparison even though the underlying abuses in both cases have had devastating consequences.
The tobacco agreement was pegged as being worth nearly $250 billion over the first 25 years. Adjust that for inflation, and the disparity is even bigger. That shows you the difference in outcomes between a case where the prosecutors have solid evidence backing their charges, versus one where everyone know a lot of bad stuff happened, but no one has come close to marshaling the evidence.
The mortgage settlement terms have not been released, but more of the details have been leaked:
1. The total for the top five servicers is now touted as $26 billion (annoyingly, the FT is calling it â€śnearly $40 billionâ€ť), but of that, roughly $17 billion is credits for principal modifications, which as we pointed out earlier, can and almost assuredly will come largely from mortgages owned by investors. $3 billion is for refis, and only $5 billion will be in the form of hard cash payments, including $1500 to $2000 per borrower foreclosed on between September 2008 and December 2011.
Banks will be required to modify second liens that sit behind firsts â€śat leastâ€ťÂ pari passu, which in practice will mean at mostÂ pari passu. So this guarantees banks will also focus on borrowers where they do not have second lien exposure, and this also makes the settlement less helpful to struggling homeowners, since borrowers with both second and first liens default at much higher rates than those without second mortgages. Per the Journal:
â€śItâ€™s not new money. Itâ€™s all soft dollars to the banks,â€ť said Paul Miller, a bank analyst at FBR Capital Markets.
The Times is also subdued:
Despite the billions earmarked in the accord, the aid will help a relatively small portion of the millions of borrowers who are delinquent and facing foreclosure. The success could depend in part on how effectively the program is carried out because earlier efforts by Washington aimed at troubled borrowers helped far fewer than had been expected.
2. Schneidermanâ€™s MERS suit survives, and he can add more banks as defendants. It isnâ€™t clear what became of the Biden and Coakley MERS suits, but Biden sounded pretty adamant in past media presentations on preserving that.
3. Nevadaâ€™s and Arizonaâ€™s suits against Countrywide for violating its past consent decree on mortgage servicing has, in a new Orwellianism, been â€śfolded intoâ€ť the settlement.
4. The five big players in the settlement have already set aside reserves sufficient for this deal.