Last week an agreement was reached regarding the restitution actions for major lenders that participated in mortgage fraud and unlawful foreclosure practices. Perhaps the biggest multi-state settlement since the 1998 tobacco agreement, the $26 billion mortgage settlement has drawn much attention in terms of whether it will resolve the housing market troubles.
Good For Some, But Not All
The settlement is expected to help the housing market but many critics suggest that $26 billion is not enough to do that. Further, very little of this amount will actually go towards helping the homeowners who were hurt by the process. Many experts are concerned that, if anything, this settlement will simply send the wrong message to homeowners that it is ok to walk away from mortgage debt responsibilities.
The most concerning criticism stems from the idea that what is meant to be a punishment for banks will end up being nothing more than a slap on the wrist. The settlement is reported to be broken down into two units: (1) $5 billion in cash payments to homeowners, who may receive up to $2,000 in restitution payments and (2) $20 billion in “credits” that banks will receive for participating in mortgage principal write downs and other loan modification options.
While $26 billion is a lot of money, it is nothing when we examine the breakdown of the details. A homeowner receiving $2,000 for losing their home to foreclosure is nothing more than a nice gesture; it certainly won’t bring the home back or prevent them from ending up in trouble down the road. Although much of the settlement’s outcome remains to be seen, it is fair to assume at this point that the banks are getting the better end of the deal.