Foreclosure Deal Far From Perfect but It’s a Start

Friday, 10 Feb 2012 09:38 AM

By Bill Spetrino

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On Dec. 16, I said the following: “Attention all state attorneys general — give the millions of underwater homeowners who have faithfully paid their mortgage over the years some relief!

“An agreement has to be reached with the 50 state attorneys general and the big banks over the damages from the housing bubble. Negotiations on that front have been ongoing. The banks, for their part, are willing to pay $25 billion, much of which will help underwater borrowers and those who defaulted on loans in the past few years.

“Sounds good, right? But in the past 13 months, nothing has been agreed to. Instead, many state attorneys general are doing what politicians do best: Posturing while they demonize the ‘evil’ banks.

Meanwhile, as this gamesmanship continues, struggling homeowners aren’t being granted relief. Both parties agree the banks have done wrong.

“But as part and parcel of the settlement, banks need to be given the immunity they need going forward — for the sake of the banking industry, which underpins the economy, immunity is required, or an open-ended liability will continue to depress this very important sector."

Thursday, we learned that Bank of America, Citigroup, Wells Fargo, JPMorgan and Ally Financial will cough up more than $25 billion, the bulk of which will go toward lowering mortgage principal for borrowers who are behind on their mortgage payments.
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More than 11 million homeowners owe more on their mortgages than their homes are worth. Home construction has suffered one of its worst years ever. Government relief programs are doing very little to help.

Cries arise that the only way to help housing is to reduce the principal on all those underwater mortgages.

This settlement was far from perfect. Almost every foreclosure being processed was, in fact, legitimate. It was the documentation process that was fraudulent. Banks didn’t foreclose on borrowers for no reason. They foreclosed because borrowers weren’t paying their mortgages.

Almost a million borrowers, many of whom also acted irresponsibly, are going to get a financial windfall in the form of up to $20,000 in mortgage principal forgiveness.

But the key is that the last thing the banks need are 49 state lawsuits, which just slow down the process. Plus, they need to be able to get all these legitimate foreclosures through the courts.

Squatters and non-paying buyers are paying nothing while living for free.

So the banks agree to this very imperfect deal, because really have no other rational option.

Is this perfect? No. But don't let the perfect be the enemy of the good.

About the Author: Bill Spetrino

Bill Spetrino is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He is also the editor of the Dividend Machine. Discover more by Clicking Here Now.



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