Friday, February 10, 2012

You and the mortgage settlement

Idaho borrowers will receive close to $100 million from the $26 billion agreement struck between government officials and five of the nation’s largest banks. That’s according to the Idaho Attorney General’s office. If you want the specifics, such as they are, go here: http://www.ag.idaho.gov/media/newsReleases/2012/nr_02092012.html

The question you're undoubtedly asking yourself is "will this help me?" Nobody knows at this point. There's been a lot of writing done about it. Here's a digest:

The New York Times: “(The) settlement money will be doled out under a complicated formula that gives banks varying degrees of credit for different kinds of help. As a result, banks are incentivized to help harder-hit borrowers with homes worth far less than what they owe."

The Wall Street Journal: "The settlement will 'remove one cloud of uncertainty that has depressed bank stocks,'' but may do less to help the housing market."
The Washington Post: “The deal is the largest of its kind since a multi-state agreement with the tobacco industry in 1998. But that deal was worth around $350 billion in today’s dollars. It’s also not a lot of money compared to the $700 billion in underwater mortgage debt, or the bailout of the banks that issued and bought the debt in the first place.”

The number of foreclosures dropped in 2011, nationwide and in Idaho, which has had one of the highest foreclosure rates in the county since the start of the housing crisis. But that may be due to the feds putting the brakes on such abuses as "robo-signing," which this week's settlement also addresses. Now that the restraints are off, the foreclosure express could be rolling again.

The plain fact is in the last five years, home prices have fallen by nearly one-third, and the nation now has 11 million homeowners who owe more than their homes are worth, to the tune of $750 billion.

The most pessimistic assessment I've read comes from Dylan Ratigan, who offers this: "America simply has too much mortgage debt to pay back. Serious economic thinkers across the spectrum, from Democrat Alan Blinder to Republican Martin Feldstein to New York Fed President William Dudley, believe that there is only one solution -- writing down the enormous creaking mound of debt. This solution is currently off the table, because writing down these unsustainable debts could cost our fragile banks enormous sums of money and possibly lead to a restructuring of one or more of our major banks. Avoiding this clear policy choice has resulted in our economy falling into a Japan-style 'zombie bank' torpor, with debts carried on the books at full value which everyone knows will not be paid back at par."