An analysis of the Bank of America $8.5 billion settlement for derivatives backed by toxic, worthless mortgages, that were sold to investors means more people will get kicked out of their homes.
Tens of thousands of Bank of America’s most distressed borrowers could be evicted and lose their homes more quickly as a result of a proposed settlement between the bank, which is the country’s largest mortgage servicer, and investors in its troubled mortgage securities.
But guess who makes out? The investors of course:
While powerful investors stand to benefit from the $8.5 billion settlement over the bank’s bundling of shoddy mortgages as securities, the fallout for the nearly 275,000 borrowers who took out those loans depends greatly on how deep they are in the foreclosure process and whether they earn enough money to dig themselves out.
There seems to be a new standard where only 31% of one's gross monthly income can go to a mortgage payment. Imagine all of the self-employed who will be locked out of buying a home with that criteria.
The reason this will kick people out of their homes is because so many are in foreclosure already but the processing is that bogged down from these mortgaged backed derivative bundles and backlogs. Additionally, many will not qualify for a mortgage modification now, mainly the customers of Countrywide.
“The mortgage servicers have repeatedly promised to do things and then not done them,” said Michael S. Barr, a former assistant Treasury secretary who now teaches law at the University of Michigan. “I think it’s positive in general, but I don’t expect it to be transformative of what we’ve witnessed from the mortgage servicers over the last four years.”
Matthew Weidner, a Florida lawyer who represents borrowers facing foreclosure, said he was skeptical of promises by the deal’s architects that lower monthly payments would be easier to obtain.
“It’s like giving aspirin to someone with cancer,” he said of the proposed assistance. “You had all the big players at the top of the pyramid negotiating but nobody was speaking for the homeowners who have far more at stake at the ground level.”
A U.S. House Democrat said on Monday he is concerned taxpayers may be partially on the hook as a result of Bank of America's $8.5 billion settlement with bondholders over soured residential mortgage-backed securities.
Taxpayer-financed mortgage giants Fannie Mae and Freddie Mac "have substantial investments in the RMBS subject to the proposed settlement and have already suffered substantial losses" on those securities, Representative Brad Miller wrote to the Federal Housing Finance Agency.
Miller questioned whether the regulator has plans to limit the losses at Fannie and Freddie and urged FHFA to "zealously pursue all available legal claims" to protect taxpayers.
Bank of America agreed last month to pay $8.5 billion to investors who lost money on the distressed securities that were assumed once the lender acquired Countrywide Financial Corp.
Miller said FHFA should look into the proposed settlement due to the high stakes Fannie and Freddie have in the residential mortgage market, and the regulator should resolve whether or not there is any liability for the two firms if the settlement value is too low.
The settlement is with 22 institutional investors including BlackRock Inc, MetLife Inc, Allianz SE's Pacific Investment Management Co and the Federal Reserve Bank of New York.