Interpreting the $25B Mortgage Settlement
February 13, 2012 10:06 AM
Read Into It What You Will
The pact announced between state and federal officials and the top five mortgage servicers has spurred a dizzying range of opinions and explanations.
A Shot Across the Bow
Government officials stressed that banks are not off the hook for mortgage mischief . "This is just one step in making sure we right the wrongs of this crisis," said HUD Secretary Shaun Donovan. (Image: Bloomberg News)
A Slap on the Wrist
Financially, the settlement will inflict little pain on the banks . Most of the costs were either previously reserved for or will be incurred over several years. (Image: ThinkStock)
Political Extortion
Observers like The Wall Street Journal editorial board have called the deal a shakedown of the banks by politicians during an election year. (Image: ThinkStock)
A Backdoor Bailout of the Banks
The banks are allowed to write down the mortgages they service and don't own (first liens) without modifying the mortgages they do own (second liens, which are well underwater) to earn credit toward the $17 billion principal reduction requirement. So they can write off other people's money (the first mortgages held by investors) and restore some value to their now-worthless second liens, according to a theory advanced by some observers . (Image: ThinkStock)
Throwing Crumbs at Consumers
The $17 billion in principal reductions will barely make a dent in the country's nearly $700 billion of negative equity — mortgage debt not covered by the value of the borrowers' homes. And the cash payments to foreclosed-upon borrowers will come to a paltry $2,000 per person at most. (Image: ThinkStock)
Just What the Doctor Ordered
Some remain hopeful that by providing relief to some homeowners, and removing some legal overhang from the banks, the deal will help the housing market and economy recovery. (Image: ThinkStock)
It Doesn't Even Exist
All this speculation about the meaning of the settlement may be moot, since the actual terms of the deal aren't public. And they won't be until it is filed with a court on a yet-undetermined date. A fully authorized, legally binding deal has not been inked yet . (Image: ThinkStock)
