When considered objectively, it is easy to applaud the recent $8.5 billion settlement Bank of America (BofA) has agreed to. Although the attempt at making restitution is feeble and transparent, at least some financial penalty for BofA’s misdeeds has been imposed. [For more information on BofA’s recent settlement with investors, see the July 2011 first tuesday article, Too big to fail or too rich to fail?.]
However, cheers over the settlement are not so resounding among homeowners who are still struggling with one of the bad mortgages in which they were placed by the big bank. While mortgage-backed bond (MBB) investors will receive a sizable cash deposit with an egg-faced “oops,” homeowners are left with more cautiously delivered promises contingent on a series of unlikely events.
BofA glibly states that their goal is to place as many homeowners as possible in loan modifications that still “perform well.” Translation: extend as many loan terms to the absolute max so as to lower monthly payments for struggling homeowners and make sure the bank doesn’t lose any more money.
Most of the subprime loans that BofA originated will be transferred to smaller, independent servicers that will ostensibly provide greater care and efficiency in cleaning up BofA’s mess. However, homeowners must first qualify for their loan to even be considered for transfer to another servicer.
Those who have already declared bankruptcy will move to the back of the proverbial line and in those cases where foreclosure is “inevitable” the foreclosure process will be fast-tracked so BofA can recover and reintroduce their real estate owned (REO) assets to the multiple listing service (MLS) housing market. [For more information on bankruptcy’s effect on homeownership, see the May 2011 first tuesday article, Bankruptcy’s often overlooked tie to homeownership.]
Thus, while the settlement is nothing but good news for investors, homeowners are still waiting and wondering, yet hurtling ever faster toward foreclosure.
first tuesday take: Please excuse our temporary lapse into pessimism, but we’ve heard it before, worse than a déjà vu moment. While the measures involving more efficient servicing through other providers are encouraging, the principal axiom of lender/homeowner relations still holds: lenders and homeowners always have been and always will be adversaries.
This settlement was not lobbied or negotiated by anyone on the homeowner’s side, but that is not the story that is being told.
Remember, the big banks will foreclose on every piece of collateral before they ever offer a loan modification that tips in the favor of the homeowner, especially the negative equity homeowner which is roughly one out of three homeowners in California. The proposed outsourcing of loans to smaller servicers may work in the favor of the lucky few, but their one promise first tuesday will keep a close eye on is the vow made by BofA’s president to foreclose faster. [For more information on why lenders prefer foreclosure over short sales, see the October 2011 first tuesday article, Lenders prefer foreclosure, not short sales.]
Although bitter and hard to swallow, in the absence of congressional authority for judicial cramdowns, getting the big banks to foreclose, clear out REO inventories and report their losses is the only medicine worth taking to get the real estate recovery going. The longer you wait in these circumstances, the more the government loses, as experienced by the Resolution Trust Corporation in the early 90s before new management came in. [For a comprehensive list of first tuesday articles on cramdowns, see the January 2010 first tuesday article, Cramdowns, cramdowns, cramdowns.]
re: “Bank’s Deal Means More Will Lose Their Homes” from the New York Times