Counterparties: 2013’s first foreclosure settlement
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2012 was the year of bank fraud, and 2013 is already looking similar. The NYT’s Jessica Silver-Greenberg reports that regulators are working on a $10 billion settlement with 14 banks over improper foreclosure practices. That’s smaller than last year’s $25 billion national mortgage settlement, but it may be more of a boon for victims of the foreclosure crisis than the previous settlement was: “a significant amount of the money, $3.75 billion, would go to people who have already lost their homes.” In last year’s settlement, only $1.5 billion came in the form of direct cash relief.
The proposed settlement is also good news on the grounds of what it would replace: the ostensibly independent reviews of loan servicing and foreclosure processing. These reviews, overseen since 2011 by the Office of the Comptroller of the Currency, along with the Fed and the Office of Thrift Supervision, were supposed to identify “unsafe and unsound practices”. Instead, they have been sharply criticized. What’s more, much of the work was actually being carried out by banks themselves.
Somehow, the review process still managed to be expensive and time-consuming. The WSJ reports that banks spent $1.3 billion on consultants to navigate the review process, with another $2 to $3 billion to come, and that individual reviews were taking as long as 30 hours to complete. The banks decided it would be cheaper and faster to simply settle.
Incidentally, this new settlement comes as there is little more than two weeks left to file a claim as part of last year’s settlement.
There’s good news too in the fiscal-cliff bill. Homeowners will continue to benefit from the Mortgage Debt Relief Act, which exempts any restructured or forgiven mortgage debt from being taxed as income. As the foreclosure mess enters its seventh year, that’s undeniably a good thing. — Ben Walsh
On to today’s links:
In sum: The fiscal cliff bill does nothing to address unemployment, the deficit or the debt ceiling – WaPo
The fiscal cliff bill includes subsidies for NASCAR and offshore financing – Naked Capitalism
The total drag on the US economy from the fiscal cliff bill: Roughly 1.3% – FT Alphaville
There’s pretty much no economic theory under which the fiscal cliff deal could be called a success – WaPo