National Mortgage Settlement: The Consumer Relief Framework
The Media has recently released that the Attorney Generals for various States have entered into a settlement with Five Major Banks regarding fraudulent practices. The final version of the settlement has not been drafted, let alone agreed upon. In addition, "settlement" at least implies that actual litigation was filed, and as such a Court may have to actually approve the settlement. Following suit with the entire process of mortgage securitization and the foreclosure filings, the Banks consider the Courts and the Legal System only as an afterthought and only when required.
Even though nothing has been finalized, agreed upon, or approved, a number of organizations have already started the rhetoric of "moral hazard" and "irresponsible borrowers". I have reviewed only the Draft of the Consumer Relief Framework, but even that reinforced my initial belief that this is another attempt to funnel money to the Banks in the name of assisting Homeowners. (In prior relief efforts the Federal Government has announced huge sums to assist Homeowners. Homeowners line up to apply for funds, and for a limited few that meet the eligibility requirements, the Government sends money to the Banks on behalf of the eligible Homeowner, of course. This time the Government did not even attempt the facade. The Governement and the Banks will just trade credits.)
Immediately, the Consumer Relief Framework talks in terms of "Servicers". Anyone who has had an issue with their mortgage should agonize over having to discuss the matter with a servicer. The Consumer Relief Framework then states:
"Programmatic exceptions to the crediting requirements listed below may be granted by the Monitoring Committee on a case-by-case basis."
The above is quoted not because of any earth-shattering revelation, but simply as an example of language of the agreement. With langaugae such as the above, it should be simple to see that little if anything will be accomplished for the Homeowner.
The Consumer Relief Framework then talks in terms of "HAMP", "31%", "debt to income levels", and "Loan to Value indices". HAMP has been a failure, but it will again give the general public the impression that the Government is doing something to help. The Courthouse Halls will be filled with comments of "I wish I could get my loan modified like that."
How is it that principle reductions, which have been rejected by Ed Demarco and the FHFA as being harmful to the American Taxpayer, are now acceptable? Suddenly, when the Banks have to come up with cash or credits, a principle reduction makes perfect sense. Second, the Banks have never pursued deficiency judgments in Ohio. Instead, the Homeowner receives a 1099 based upon the forgiveness of debt (which the IRS waives base upon a hardship). However, now the Banks can obtain a credit for the potential deficiency that was forgiven. I believe a majority of the credit set forth in the Consumer Relief Framework will be based upon deficiency judgments that were in past never pursued. The Banks will now have even less incentive to prevent a foreclosure. Instead of a loan modification, involving a principle reduction, the Banks will cram through even more foreclosures. But now in the name of the Consumer Refief Framework the Banks will pursue deficiency judgments in order to get credit towards their settlement.