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The cup-half-full mortgage deal

By Jay MacDonald ·
Monday, February 13, 2012
Posted: 10 am ET

The $25 billion federal-state legal settlement with five of the nation's largest banks over improper foreclosure, messed-up mortgage modifications, robosigning shenanigans and other abuses drew mixed responses from industry groups, economists and consumer advocates.

Does the deal put an end to lenders behaving badly or merely let them off the hook with a slap on the wallet? Like the half-filled cup, opinions varied depended on how one views the settlement and the results one hopes it will achieve.

Iowa Attorney General Tom Miller, who led the talks on behalf of the states, told reporters: "I believe that this agreement will eventually make widespread principal reduction throughout the country commonplace. There's going to be a significant amount done right away."

But Patrick Newport, a housing economist at HIS Global Insight, says be careful what you wish for: "There is a danger in principal reduction, and that is that you create an incentive for people who are current and that intend to remain current to start asking for relief. Banks don't want to do that that because that's a strategy for losing money."

Consumer Financial Protection Bureau chief Richard Cordray offered a measured response to the deal:

Today's $25 billion settlement will help many struggling homeowners across the country stay in their homes. Going forward, the Consumer Bureau will be examining servicers throughout the industry to make sure they are following the law. We will also be issuing rules to bring greater fairness and transparency to the mortgage servicing marketplace.

Center for Responsible Lending President Michael Calhoun was cautiously optimistic: "The foreclosure settlement announced today will help build a stronger housing market while keeping more people in their homes. But while a significant step toward fixing the foreclosure crisis, this settlement was never intended or able to provide a comprehensive remedy. Much more work is required."

Working America Executive Director Karen Nussbaum gave the deal a thumbs-down: "The $25 billion is not what we wanted. We were hoping for much more. This is like pocket change. So we hope this is a down payment … only a handful of people are actually going to have their payments reduced, and the people who have already lost their homes will get $2,000. That doesn't come close to fixing the problem."

National Association of Consumer Advocates Director Ira Rheingold offered this critique: "There's a number of pieces that are a good step forward for a lot of homeowners, but it doesn't do nearly enough to solve the problem."

Center for Economic and Policy Research Co-director Dean Baker told the Washington Post: "I'm not thrilled with the settlement, since it doesn't accomplish much, but at least it doesn't preclude further civil or criminal suits. The big plus is that the settlement does not preclude further legal action on securities fraud and other issues."

Now that the experts have weighed in, what do you think? Will this landmark $25 billion settlement help improve America's housing crisis?

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February 14, 2012 at 9:29 pm

This is a start but doesn't help people like me who have made their payments on time in a house I could afford-not an inflated house with payments people couldn't sustain when the Adjustable rate reset on a house worth less than they bought it for. I have a ten year adjustable fixed rate that will reset in 2 years. My house is worth less than I owe and I've lived there for 9 years now and put about 12 grand into it so far! I didn't buy during the bubble and I'm still underwater!!! I wish i could stop making payments and live here for a couple years until the bank kicks me out like some I've heard about!!!!!Where's my bailout?