I swear this is the last time I will write about this. From my traffic patterns on this site it seems that you guys have gotten bored with this discussion, so I will take the hint and move on. But for those of you who wanted some additional information on the settlement, I thought I would put together one last post explaining some of the details related to the Obama Administration’s mortgage settlement since it was formally announced last week. There are some details that might interest you.

How long is this going to take? First, the projected timeline was announced/hinted at. The projection is that the settlement negotiators will pick an administrator to handle the logistics of the deal over the next 30 to 60 days. Then, over the next six to nine months the administrator, the attorneys general, and the five participating banks (Ally/GMAC, Bank of America, Citigroup, J.P. Morgan Chase, and Wells Fargo) will then make the decision as to which home owners will get help. The banks have three years to provide the assistance that was outlined as part of the settlement. Taken all together, I would expect since so many people have to approve the critical decisions that will allow this effort to proceed, we are looking to at least a year out before any meaningful assistance is provided. Interpretation — don’t hold your breath.

This settlement punishes the big banks, right? Not really. While Attorney General Eric Holder claims it “rights the wrongs that lead our nation’s housing market collapse,” most people don’t really believe that. There were some financial penalties for the “robosigning” strategies used by banks at the height of the foreclosure wave. Each of the five banks mentioned has been accused of filing false paperwork related to foreclosures, which is wrong. They should pay for that. But the amount they are paying to the Department of Justice and to the 49 state attorney generals isn’t that much. Even the $2,000 they project that will be paid to families who were foreclosed on isn’t that much.

Then there is the principle reduction component of the settlement. The problem is the amount of principle reduction will be done by the mortgage backed securities, which are not necessarily held by the banks. That means they really aren’t writing anything off but someone else’s money. That and this is money they were most likely going to have to write off anyways. Interpretation — Can you say Ocean’s 11?

So who does this settlement reward? Any attorney worth their salt will tell you that a lawsuit will help provide reparations to the harmed and hopefully reduce the likelihood that the company or individual will perpetuate any impropriety in the future. This settle really does neither. The cash amount of the settlement isn’t high enough to make the banks hurt. If the cash amount was higher, then the banks may be hurt to the point that they require ANOTHER bailout. The principle reduction component is not being absorbed by the banks. It is being absorbed by the mortgage backed securities that are held by large pension funds.

There is a group that will be getting a cash settlement out of the agreement — people who were foreclosed on by these five banks. I read the absolute best quote on the topic from Anthony Accetta, a former assistant U.S. Attorney in New York. He said, ”Banks should not be allowed to use phony documents to foreclose, but bad homeowners shouldn’t get a windfall, either. Giving $2,000 to people who lied on their mortgage applications. What is that all about?” Amen brother.

So do you know who ultimately pays for this settlement? You and I. The Obama Administration should have sought criminal prosecution of those involved in the robosigning efforts. But the cash settlement will be paid for by increase mortgage lending and underwriting fees, higher interest rates, and tighter underwriting standards. Interpretation — the banks got away with one here.

The Bottom Line – This settlement rings more of campaign fodder than anything else. It does not “right the wrongs that lead our nation’s housing market collapse,” Mr. Holder. For those Americans with a fixed rate mortgage who put down a decent down payment or went through the process to get approved through strict FHA underwriting standards, kept our credit clean, it really makes us look like fools. Our cohort did the right thing and now gets nothing out of the settlement. Truthfully, what we wish is that the Federal Government would get out of the way and let the remaining foreclosures clear the system. In the mean time, please stick to increasing the requirements of lenders to push more paperwork and turn in monthly call logs. That reform will really get us back on track sooner!

If you are a Utah homeowner, the impact to you and your family will be minimal. Utah Attorney General Mark Shurtleff — to his credit — has said that this agreement should be more of a down payment by the banks for the injustices they perpetuated in mortgage lending through the housing boom. I agree to a point. I think the banks should be punished for the practice of robosigning, but for speculation by people whose eyes were bigger than their wallets? That isn’t their fault. They shouldn’t pay for bad investment choices by consumers. Utah mortgage companies do not hold the fault for that either. Consumers do.

So for all the hoopla, the mortgage settlement has amounted to a whole lot of nothing. As I described in a previous post, the way it is designed, the agreement will be available a projected 1.3% of homeowners. If it is as successful as the other mortgage reform initiatives put in place by the Obama Administration, you can cut that number in half, shave a little off the top, and then divide it by two if you want to know how many people it will actually help.

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