Explaining Southern California's economy

You call that a mortgage settlement?

Mortgage settlement

Reuters/Gary Cameron

U.S. Attorney General Eric Holder and U.S. Housing and Urban Development Secretary Shaun Donovan announce that the government and 49 state attorneys general have reached a $25 billion settlement agreement with the five largest mortgage lenders to redress foreclosure abuses, in Washington, February 9, 2012.

UPDATE: California Attorney General Kamala Harris wasted no time in leaping ahead to a provision of the deal that could up the settlement to $45 billion, with California homeowners getting $18 billion. The U.S. Department of Justice says $7 billion, and adds that "[s]ervicers that miss settlement targets and deadlines will be required to pay substantial additional cash amounts." Maybe she doesn't like the size of the stated number all that much, either?

We have a mortgage settlement at last between the big banks and the states. California and New York, the two staunchest holdouts, have signed on. But then there's the actual number: $25 billion (initially reported as $26 billion). It just isn't that much. And although the news of the settlement has been greeting positively, for the most part, it's far from clear that it will ultimately turn the housing market around.

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Countrywide settlement solves at least one Bank of America problem

Mercer 15154

Mark Wilson/Getty Images

File photo: Angelo Mozilo, founder and former CEO, Countrywide Financial Corporation, testifies during a House Oversight and Government Reform hearing on Capitol Hill March 7, 2008 in Washington, DC.

So Bank of America will shell out $335 million to settle legal claims that Countrywide Financial "systematically discriminated" (according to the LA Times) against minority borrowers. Here's the thing, though: The subprime loans in question were generated before BofA bought Countrywide in early 2008. So BofA inherited this problem, along with the rest of the long nightmare that has been Countrywide — and the bank has been at pains to point that out, stressing that it doesn't do this kind of thing.

This raises the obvious question of whether, as part of the acquisition process, BofA realized that Countrywide was pushing minority borrowers into subprime loans. The federal government was certainly on the case. The Fed alerted the Justice Department to it in 2007.

You can now see how Countrywide was operating, opportunistically urging borrowers to go subprime — especially if those borrowers would have qualified for a conventional prime loan. Countrywide was invested in generating subprime loans — that was its business model. It certainly couldn't make as much money on prime loans, nor could it presumably garner as much interest from firms that wanted to package higher-risk, higher-return loans into securities that could then be given the general thumbs up by the credit ratings agencies.

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California and Nevada team up to make the housing crisis last forever

The Attorneys General of California and Nevada, Kamala Harris and Catherine Masto, have joined forces to pursue the banks that were involved in the foreclosure crisis to the ends of the earth. This is crusading stuff. But will it actually help? The LA Times sums it up:

The new alliance between Harris and Masto comes as the largest banks are working to strike a deal with a coalition of attorneys general and federal agencies that is led by Iowa Atty. Gen. Thomas Miller, who has forced the mortgage industry to accept large settlements in the past.

Masto has said the state would evaluate any proposed deal but would push ahead with her own work. New York, Delaware, Kentucky and Minnesota have signaled they are unhappy with the direction of the talks with the banks. New York and Delaware have struck their own agreement to pursue a wider probe of Wall Street's role in the mortgage meltdown.

The negotiations were expected to have produced a settlement of as much as $25 billion for the states, including a provision that would write down principal for troubled borrowers, a move long pushed for by housing advocates. But despite pressure from the Obama administration for a quick settlement that might give the beleaguered housing market a boost, those talks have dragged on for more than a year.

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