Raskin says Fed will fine mortgage servicers

Massimo Calabresi, Time Magazine

Iowa AG Tom Miller

The never-ending negotiations between the 50 state attorneys general (minus a few big ones) and five major banks over penalties and standards for past, present and future mortgage servicing are finally ending, and some details are beginning to emerge from sources familiar with the deal. The big number is the $25 billion that the banks will commit to three categories of the settlement: $5 billion in cash payments, mostly to the states, $3 billion in refinancing for underwater mortgages, and $17 billion in principal reduction. Here’s the breakdown:

Of the $5 billion, $1.5 billion will go to people who have been foreclosed on and were abused in some way during the process. The claims are nearly instantaneous–”we don’t read anything, it’s check the box,” says one state AG negotiator. But the payments are also small: $1,500 to $2,000. Now, the vast majority of people who lost their homes over the last several years probably would not have been able to make their payments even if the banks had been behaving well. For them a no-questions-asked $2,000 check from the bank for the poor treatment they received in the process may be fair. On the other hand, those who were unfairly evicted may be insulted by the small amount. But no one taking the payment would be giving up any rights to bring cases against the banks for wrongful eviction or other claims they may have. The federal regulator with oversight of the issue, the Office of the Comptroller of the Currency, has sent out 4.5 million forms to potentially wrongfully evicted families; processing those claims will be paid for by the banks.

Around $2.75 billion of the $5 billion in cash the banks are coughing up will go to state programs for foreclosure mitigation efforts like legal aid hotlines, mediation between homeowners and banks and counseling. Some $750 million to the federal government for its foreclosure mitigation programs.

The $3 billion for refinancing underwater loans targets a limited population: only those who are current on their payments and who have been current for several months. The Obama administration has launched its own less-than-ambitious program in this regard. Mortgage refis tend to help those who need it least–particularly if they’re limited to people who are current on their payments. Refis also only reduce interest payments, not the actual value of the underlying loan.

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