The Wall Street Journal is reporting the Obama administration is planning on levying $20 billion in civil fines on mortgage services for foreclosure fraud in order to force the Banks to reduce principle on mortgage modifications by a similar total amount. In other words, we're gonna fine you by a big whopping sum if you don't actually help homeowners, reduce mortgage principal and take the loss. Of course absurd mortgage backed securities and investors remain unscathed.
The Obama administration is trying to push through a settlement over mortgage-servicing breakdowns that could force America's largest banks to pay for reductions in loan principal worth billions of dollars.
Terms of the administration's proposal include a commitment from mortgage servicers to reduce the loan balances of troubled borrowers who owe more than their homes are worth, people familiar with the matter said. The cost of those writedowns won't be borne by investors who purchased mortgage-backed securities, these people said.
If a unified settlement can be reached, some state attorneys general and federal agencies are pushing for banks to pay more than $20 billion in civil fines or to fund a comparable amount of loan modifications for distressed borrowers, these people said.
But forging a comprehensive settlement may be difficult. A deal would have to win approval from federal regulators and state attorneys general, as well as some of the nation's largest mortgage servicers, including Bank of America Corp., Wells Fargo & Co, and J.P. Morgan Chase & Co. Those banks declined to comment.
The success of this is immediately doubtful. Notice how banks must approve individual mortgage modifications when it is a $20 billion dollar loss for them and that is an evaluation of homeowners by their terms? Then, of course the threat, the either/or of these fines imply a promise and lord knows when mortgage servicers (Banks) are not required to keep that promise to reduce principle, odds on they will not.
From the Wall Street Journal:
The deal wouldn't create any new government programs to reduce principal. Instead, it would allow banks to devise their own modifications or use existing government programs, people familiar with the matter said. Banks would also have to reduce second-lien mortgages when first mortgages are modified.
There is one tidbit that is hidden in the midst of the article. If homeowners are not significantly helped:
some economists warn that rising numbers of underwater borrowers will drag on housing markets and the economy for years unless more is done to help them.