Homes For Sale

The foreclosure-abuse settlements announced yesterday

While the attorneys general proposed many similar terms last month, banking regulators didn’t include any requirements for lowering mortgage debt. That may hinder Iowa Attorney General Thomas J. Miller as he leads a group of state officials working with the administration to require lenders to evaluate loan cuts for some borrowers whose homes are worth less than their mortgages.

“I have always been pretty skeptical about the ability of principal reductions to get you much,” said Mark A. Calabria, director of financial-regulation studies at the Cato Institute, a public-policy research group in Washington. “I think we will look back and say this was the death knell.”
The settlements, which include yet-to-be determined monetary penalties, also prohibit banks from seizing homes for which borrowers have negotiated a trial or permanent loan modification. The attorneys general proposal goes a step further, freezing the foreclosure process even while borrowers are being evaluated for workouts.

Divided Views

The agreements stem from reviews of the mortgage-servicing industry

HAMP’s Shortcomings

The Treasury Department’s main foreclosure-prevention program, which lowers monthly payments, has resulted in about 600,000 permanent loan modifications, short of its goal of up to 4 million. The Home Affordable Modification Program, also known as HAMP, doesn’t require loan cuts.
Federal regulators said the decision to craft their own deal doesn’t preclude what they call a global settlement with banks that could also include the state attorneys general and Obama administration.

Officials from Justice Department, the Department of Housing and Urban Development and 10 state attorneys general met yesterday for a second time with banks to negotiate a broader settlement, Associate U.S. Attorney General Tom Perrelli told reporters. The group is discussing potential fines and whether servicers should be required to reduce the principal on some home loans.
The agreements “will not limit our pursuit of remedies and reforms,” Iowa’s Miller said yesterday in a statement. HUD Secretary Shaun Donovan said the deals support their broader effort.

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