Receiving Wide Coverage ...

B of A’s Side Deal: Bank of America has pledged to make bigger cuts to borrowers’ mortgage balances than the other servicers in the $25 billion robo-settlement, the papers report. In return, federal and state officials agreed to reduce B of A’s fines under the pact. The Journal notes there is likely to be some controversy about this side deal because, like the broader settlement, it allows B of A to reduce principal on loans it services for others but doesn’t own. An anonymouse from the Obama administration assures the paper that “principal reductions will be done only when there is a benefit to investors, meaning that the cost of the principal reduction will be less over time than taking the loan through foreclosure.” A Journal reader responds in the comment thread: “We shall see.” Of course, as we’ve said before, all of this information is as reliable as hearsay until the settlement documents are made public. Both the Journal and the Times say the legal papers could finally be filed today — nearly a month after the press conference fanfare. Also coming as soon as today is a report from HUD’s inspector general, which anonymice tell the Times “is likely to find a broad pattern of mistakes, and … could ignite fresh outrage toward the banks.” Meanwhile the Post analyzes the various housing policy changes the administration has announced in recent months and finds the White House has softened its stance against providing relief to those who didn’t “deserve” it — i.e. speculators and people who took on too much debt. Administration officials “have concluded that it is important to prevent homes from going into foreclosure whether owned by an investor or a family — because rising foreclosures of any kind hurt communities,” the Post says. Maybe the president’s advisers dusted off one of their Ivy League economics textbooks and brushed up on “negative externality,” a concept that’s at least as powerful as moral hazard. Or maybe they visited a forlorn neighborhood in Florida or Nevada. Or just studied the poll numbers. Like Clint Eastwood says in “Unforgiven,” “deserve’s got nothing to do with it.” Also in the Times, “BreakingViews” defends Ed DeMarco, the head of the Federal Housing Finance Agency, who’s been criticized for resisting principal reductions. Other types of loan modifications often work just as well, without producing as big a loss for Fannie and Freddie, the column says. “Critics are also ignoring DeMarco’s mandate to minimize losses from bailing out the two mortgage agencies. By attacking him, they are trying to force him to put struggling homeowners’ needs ahead of all taxpayers.” Wall Street Journal, New York Times, Washington Post

Wall Street Journal

Treasury Secretary Tim Geithner’s recent op-ed, which declared that critics of regulatory reform suffer from “financial crisis amnesia,” garnered a lot of incredulous letters to the editor.

The “Heard on the Street” column says a recent increase in household debt levels isn’t as worrisome as it may look, because after-tax incomes have grown faster, so the debt-to-income ratio has improved.

New York Times

Columnist Floyd Norris looks at a dispute over the 2009 reorganization of bond insurer MBIA into two units — one that housed its traditional municipal finance guarantee business and the other containing the toxic mortgage security and CDO exposure. Banks and investors that had been relying on MBIA to cover losses on the radioactive waste sued, and may soon get their day in court, which would make this “the first major civil case from the financial crisis to go to trial,” rather than being settled with a seemingly big check and no examination of what actually went on. One of the investor plaintiffs has unearthed a 2008 report prepared for MBIA by Lehman Brothers (and completed days before that investment bank failed) that warned losses from the structured finance portfolio could sink the insurer. MBIA hid this rather salient information from the New York insurance commissioner who approved its split into two, the investor says. But Norris sees blame on all sides: “The motto of the credit boom seems to have been ‘Trust. It would cost too much and take too long to verify.’ That motto applied to those who made the mortgage loans, to those who put together securitizations, to those who rated them, and to those, like MBIA, that insured them. It also applied to regulators, as the coming trial may make clear.”


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