The Mother Of All Real Estate Settlements (MOARES)
OK, stop the presses, last week I wrote about our administration’s “most recent” effort to get the real estate mortgage foreclosures straightened out.It seemed then that the rejiggered HARP program was about as far as the government was going to go and then—OMG--there’s a new program. And if history is to help us name it, I’ll call it MOARES—the Mother Of All Real Estate Settlements.
On Thursday the nation’s five biggest banks, together with state’s attorneys general and federal officials announced the largest housing settlement ever—which will cost more than $26 billion—over shoddy foreclosure practices.The deal may offer relief to more than one million U.S. homeowners who are having trouble paying their mortgages.Apparently the banks will chip in $26 billion, and the government will spend the money (sound familiar?)
Of the $26 billion, $17 billion will be spent toward direct relief to borrowers, with 60% going toward principal reductions, or the write-downs of mortgage debt, as well as other kinds of loan modifications or assistance.$5 billion will go toward a reserve account for state and federal programs and to individual homeowners harmed by bank practices. Negotiators have said that about 750,000 people could receive checks for about $1,500 to $2,000.
About $3 billion will go toward helping borrowers (who are current on their mortgages but have no equity in their homes) refinance into new, lower-cost loans. The program will be similar to an existing Obama administration program (HARP) that seeks to help underwater homeowners refinance their homes.
In a press conference Thursday afternoon, Housing and Urban Development Secretary Shaun Donovan discussed MOARES.He noted that this historic settlement is the most significant effort we have seen thus far in the financial crisis, and that holding banks accountable whose irresponsible behavior led to the crisis will have a huge impact. He said this move is critically focused on ensuring homeowners who have been wronged should be able to benefit as well.
Approximately 1 million homeowners should benefit from principal reductions of their loans, and from refinancing--should they qualify. Donovan stated that the $5 billion going to the various states could be used to aid neighborhoods, as homes that have been left vacant may be purchased and renovated, so property values will increase.He concluded by suggesting the president believes this settlement is a perfect example of how we can still get things done in this country.
According to RIS Media reports, there are nine other financial institutions in discussions with states and federal regulators, and if they are included, the final settlement could increase by billions of dollars. If these other servicers participate, the total settlement could rise to between $30 billion and $45 billion in penalties—some of which may be used in housing relief.
The next step is for the settlement to be filed as a judgment in federal court. Once the court approves the judgment, servicers will be obligated to ante up their share and the federal courts will then distribute funds into an escrow trust that will distribute cash to the federal government and states.
My opinion on MOARES—it’s not a great plan, the people who have been stung the hardest will never see a penny.Those who have been holding on and can withstand a delay of another 2 or 3 years may see some relief.Broken down neighborhoods may get some assistance, and get cleaned up—that’s probably the part of the program that helps all of us the most. For the banks, it's an expensive solution but closes the door on further fines and issues related to the real estate debacle. Oddly this solution comes as the election nears--just in time to get the bank's financial support. A latter day quid pro quo.