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$25B Settlement To Spur More Foreclosures

From Bloomberg:

Foreclosure Deal to Spur U.S. Home Seizures

By Prashant Gopal and John Gittelsohn
Feb 10, 2012

The $25 billion settlement with banks over foreclosure abuses may result in a wave of home seizures, inflicting short-term pain on delinquent U.S. borrowers while making a long-term housing recovery more likely.

The first part of this may be true. But it is hard to see how gouging banks for $25 billion dollars is going to encourage them to give out more mortgages in the future. So it is hard to see how any of this makes "a long-term housing recovery more likely."

Lenders slowed the pace of foreclosures as they negotiated with attorneys general in all 50 states for more than a year over allegations of faulty and fraudulent paperwork used to repossess homes.

Notice there have only been allegations. We have yet to see any actual proof of "faulty and fraudulent paperwork."

With yesterday’s agreement, banks are likely to resume property seizures

The backlog of foreclosures has trapped homeowners in properties they can no longer afford, depressed neighborhood prices by increasing the number of abandoned homes and led banks to tighten mortgage credit standards because of uncertainty about the cost of their potential obligations.

So, according to Bloomberg, the good news is that these "trapped homeowners" will now be foreclosed on. They are so lucky!

Foreclosure starts fell 46 percent in December from October 2010, when the investigation into the so-called robo-signing of mortgage documentation began, according to Irvine, California-based RealtyTrac Inc.

For the record, ‘robo-signing’ is largely a propaganda myth. It claims banks are at fault for not vetting mortgage applications carefully enough. While they were being forced by the federal government to loan money to people with bad credit.

The agreement will direct $17 billion to writing down debt to buffer about 1 million homeowners from foreclosure through mortgage forgiveness, forbearance or loan modification programs, according to Housing and Urban Development Secretary Shaun Donovan. About 750,000 borrowers may get direct payments of as much as $2,000 to compensate them for servicing errors.

We were told by CNN yesterday that "some 1 million U.S. homeowners who are underwater on their mortgages could be eligible for as much as $20,000 in relief of principal owed, according to Secretary of Housing and Urban Development Shaun Donovan."

Principal reductions and other loan modifications will be accessible to a small universe of borrowers because the deal doesn’t include loans owned or guaranteed by Fannie Mae (FNMA), Freddie Mac or Ginnie Mae, which pools and sells Federal Housing Administration loans.

But don’t worry. Obama is bailing these people out with HARP III.

The five banks included in the settlement control or own 7.3 percent of all outstanding single-family mortgages, according to Inside Mortgage Finance.

“The primary beneficiaries of any principal reductions, loan modifications or refinancings are really a universe that excludes 92 percent of mortgage borrowers,” said Guy Cecala, publisher of the newsletter…

So this $25 billion dollar settlement just addressed a fraction of a fraction of mortgages.

A surge of home seizures may drive down values, at least for a while, in a fragile market. The number of new foreclosure filings fell 34 percent last year, according to RealtyTrac, resulting in a backlog that now may flood the market with low- cost properties. About 1 million foreclosures will be completed this year, up 25 percent from 2011, according to the firm

And, once again, these banks might be a little more reluctant to pass out loans. ‘Once bitten, twice shy.’

The money may have an added benefit: It will test the effectiveness of principal forgiveness in preventing defaults, and may spur a larger-scale program if successful, said Paul Diggle, a property economist at Capital Economics

Yes, sir. HARP III is going to be a real doozy.

This article was posted by Steve on Friday, February 10th, 2012. Comments are currently closed.

One Response to “$25B Settlement To Spur More Foreclosures”

  1. GetBackJack says:

    Did anyone else note the jarring change in our national lexicon, appropriate to the Obama-era??


    instead of


    (who knew a 19 year old illegal immigrant bus boy would not be able to keep up the payments on a $632,000 4,000 sqft new home with pool? Boy … it’s a real head shaker, I’ll tell you)

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