The Obama Administration won a political victory with the $26 Billion mortgage settlement announced last night. But the most impactful part of the plan – principal reductions – may be nothing more than what the banks are already doing by forgiving the unpaid balances on short sales.
The New York Times reports:
Despite the billions earmarked in the accord, the aid will help a relatively small portion of the millions of borrowers who are delinquent and facing foreclosure. The success could depend in part on how effectively the program is carried out because earlier efforts by Washington aimed at troubled borrowers helped far fewer than had been expected.
Still, the agreement is the broadest effort yet to help borrowers owing more than their houses are worth, with roughly one million expected to have their mortgage debt reduced by lenders or able to refinance their homes at lower rates. Another 750,000 people who lost their homes to foreclosure from September 2008 to the end of 2011 will receive checks for about $2,000. The aid is to be distributed over three years.
$2,000 is nothing but a bribe for votes. And refinancing at even lower rates is pointless as well – that ship has already sailed several times (and sunk). The whole hubbub about this plan is how it could lead to mortgage principal reductions for underwater borrowers.
But, there is a big problem.
HousingWire reports on Wells Fargo’s plans:
The San Francisco-based bank will provide $900 million in payment relief through refinances as part of the deal. The funds will available in March, the bank said.
Wells will also provide $3.4 billion in principal reduction and short sale programs that forgive deficient balances.
It will also pay $1 billion to the states as part of the payments to borrowers in foreclosure between 2008 and 2011. Eligible borrowers could get as much as $2,000.
Banks are already forgiving leftover balances from short sales. This is nothing new – they are just getting credit for something they are already doing. I suppose, technically, this is one way of reducing the total mortgage balance owed… but this is very different from reducing balances so people can actually keep their homes. This is not how this program was sold to we citizens.
We gave away legal immunity for nothing.