CA Attorney General Didn’t Give All the Mortgage Fix Numbers

Lansner On Real Estate - posted by Jeff Collins

Attorney General Kamala Harris’ spokespeople say they didn’t give all the numbers in explaining California’s share of a $25 billion foreclosure “robo-signing” settlement reached last week.

Harris claimed in a Feb. 9 press release that the state’s share would be $18 billion, but failed to explain that there are two methods of calculating how much the state’s share of the settlement would be.

In one of those methods, the state’s share would only be about $12 billion.

One is the credit banks will get — based on a complex set of rules — for assisting financially distressed homeowners and for payments to state and federal governments. That’s estimated at $25 billion nationwide and about $12 billion in California.

The other is the actual value to homeowners – that is, the dollar value of mortgage balances they will not have to repay – which has been estimated at $40 billion nationwide and $18 billion in California.

On the day of the announcement, the National Mortgage Settlement website and most news reports described the settlement amount as “roughly $25 billion in relief” – based on the amount banks would be credited for contributing.

But Harris’ news release called the settlement “an historic commitment to California of up to $18 billion that will benefit hundreds of thousands of homeowners in the state.” That was based on the dollar value of the settlement to homeowners.

Gledhill explained that the bank’s cost of writing down a loan by, say, $20,000 could be as low as $2,000.

The Wall Street Journal reported that complex formulas in the settlement spell out exactly how much credit banks get for aid provided to homeowners. For example, they get less than a dollar’s credit for reducing the value of a “second” mortgage on a home that’s severely delinquent, the newspaper said.

A blog post by Georgetown Law professor Adam Levitin explains further that banks get full credit for writing down a loan they own, but a half credit for loans they service but are owned by others.

“The banks receive variable credit for these actions,” Levitin wrote in the Credit Slips blog. “Put differently, $32 billion of the settlement is being financed on the dime of (mortgage-backed securities) investors such as pension funds, 401(k) plans, insurance companies, and the like — parties that did not themselves engage in any of the wrong-doing covered by the settlement.”