Biden: Why we settled bank mortgage suit
Dick Bove says mortgage bailout means "only fools meet their financial committments"
Biden: Why we settled bank mortgage suit
Joseph N. DiStefano
See UPDATE from Delaware Attorney General Beau Biden below. EARLIER: After months of dickering, the California and New York attorneys general have joined Republican-run states in endorsing a proposed settlement to the many home-loan management complaints facing giant lenders Citigroup, JPMorgan Chase, Bank of America, Wells Fargo, Ally Bank. Settlement details here. WSJ reports here. The outline of the deal: $5 billion for the states (about a third of which will be passed in $1,000-$2,000 payments to homeowners who were wrongly speed-foreclosed during the late financial crisis); plus $20 billion worth of mortgage reductions for people whose loans are now worth more than their houses.
Pa. attorney general Linda Kelly in this statement said the state could get up to $266 million for the settlement:
- $93 million for "loan modifications and other direct relief" UPDATE: Delaware has rolled over and agreed to join the settlement; its share is up to $45 million, says the state's elected attorney general, Beau Biden (his dad is Vice President). "And we have maintained our investigative authority" and can keep suing and pressing banks to improve practices, for example by challenging loan servicers who "have an interest in foreclosing" instead of settling with borrowers; also in easing terms for active-duty servicemen who face foreclosure due to military assignments. (More from Biden at bottom)
- $21 million in "cash payments to Pennsylvania borrowers who suffered servicing abuse and lost their homes to foreclosure from January 1, 2008 through December 31, 2011."
- $81 million in refinanced loans to Pennsylvania homeowners who are "underwater"
- $69 million in direct payment to Kelly's office
"We were working it late into the night," Biden told me. "Based on the settlement they're going to have to do some of the principal deduction for borrowers who are hanging on by their fingernails. That's also to the benefit of the investor. And people who are underwater but on time will be able to refinance their mortgages.
Consumer advocates (like PICO Network, a church-based liberal activist group) say it's not enough: lenders need to be punished for violating due process by mass-signing loan-default paperwork without verifying its accuracy; for marketing inappropriate loans to people who can't pay them; and more. But bank analyst Richard X. Bove in a report to clients of Rochdale Securities says today the settlement is a "Deal from Hell" because it rewards the wrong people: "The government has selected a small minority of homeowers to get this benefit" - he estimates one million. "Homeowners who made large down payments" or who committed the "terrible mistake to pay down the principal" won't get any relief. "Homeowners who made minimal or no down bayments will get the windfall benefit of a lower principal repayment or cash payment." Here's how Bove sees this working:
- "You and I buy two exact same $200,000 houses...
- "You put 20%, or $40,000, down. I put $5,000 down...
- "You make payments on time and pay your loan down by another $10,000. I (pay down my) loan by $5,000, (then) stop making all payments.
- "The value of both homes drops by 20% - $40,000.
- "You have $10,000 in equity in the house. I am underwater by $25,000...
- Under the settlement plan, "My loan amount gets dropped by $30,000." But you have to keep paying your original loan at the old terms.
- "You used your savings to make a down payment. You made your payments regularly.
I did neither.
- "The attorneys general believe you deserve nothing. I get a windfall benefit."
And banks will just pass their costs on to the public through higher fees, Bove predicts. The lesson: Deadbeats get bailouts, and "Only fools meet their financial commitments." UPDATE: Not so, Biden told me: "I tell people who are angry about irresponsible borrowers and lenders that $3 billion of the settlement will refinance people who are underwater but paying their credits on time. And it is in everyone's interest" to keep more homeowners from going into foreclosure and cutting home values. Will the settlement mark the bottom for home prices? Said Biden: "I hope so."
Duh. That's how this has gone all along, with all the bailouts and whatnot - the over-extended get help, and the responsible get screwed. "Too big to fail" was wrong from the get-go, and that attitude has carried into all these other places. If there's no penalty for defaulting, why pay at all??? When everyone's credit score is under 650, who cares anyway???— citylumberjack- "...the California and New York attorneys general have joined Republican-run states in endorsing a proposed settlement..." then "Settlement says every state but Oklahoma is on board"
So is this saying that every state except California, New York, Oklahoma (and maybe Delaware) is "Republican-run"? Wow, didn't know that. The GOP had a better 2010 election than I thought - they run 46 states?
— fafafooey - What do you expect from the criminal Republicans, who are owned by banks, Wall Street, Bain Capital, Big Oil, Halliburton, and Wal-Mart? They don't care about hard working people who have suffered thanks to the Bush Administration's tax cuts for the rich and two illegal wars. It is sad to see that women, children, minorities, and gays have been especially affected by what the Republicans have done. yet, all they want you to do is blame the black president because, well, he's black.— eldiablodelsol2009
- Fafa, try to be less silly. I'm not going to name all 50 states in this item, even though you might find it a helpful reminder. I'm noting that the two big Democratic run states held out, while the major Republican run states were more willing to settle.— Joe D
- Once again, we see the rewarding of failure and penalizing of success. Government stupidity at its finest.— kelprod2
- This country is so screwed it is beyond repair. no one has any sense fo responsibility anymore. it is always a finger pointuing exercise (see ol2009 abve showing just how nieve he is nad how brainwashed his mind has become) R's and D's over the last 50 years together have done this. I mean Casey Jr spending most of this week writing a letter to MLB and the Nationals about selling tickets to a Phillies game to DC residents only. That is the most pressing thing that he had to do? Then we get drawn into an argument about a hockey goalie not going to the White House - like that has any bearing on anything that is important. Forcing banks to give loans to people who could not afford them was a dumb thing to do, but someone pulled the race card out because they are too dumb to realize they cannot afford what they wanted and now we are in this mess with housing - people only know how to load videos to youtube - but cannot out figure out a budget for themselves and as a result those who are responsible have to take it on the chin while others get relief and you continue along your way doing the right thing.— reddog44
Comment removed.
