Bank of America's "Settlement" Will Cause More People to Lose Their Homes

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.”

It's all about Wall Street, not main street, what a surprise. One Democrat thinks this latest deal means taxpayers on the hook for it:

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.

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B of A's $8.5 billion could help detoxify assets

If the $8.5 billion were used to help Bank of America to maintain their housing stock in a safe and mortgagable condition, the value of those homes would increase. If they were maintained they could be sold to everyday americans. Right now these repos are being sold to investors for low low cash prices due to their neglected condition. This just forces the prices lower and lower. And the assets get even more toxic. Bank of America it is time for detox. The investors will benifit when the realestate market comes back.

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ridiculous

First, that's peanuts, second it's for investors and third home prices are still not affordable. The fact they are going for 20% down plus 31% ratio to gross income for mortgage payments says prices must drop for real people to buy the homes to live in. Notice wages are repressed and their is a jobs crisis?

Or is BoA hiring some people to go comment on blogs to try to spin their pathetic deal.

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Anecdotal evidence

Yes, it is ridiculous to think that places could be sold to "everyday Americans" without either huge shift in current economic-poliitcal-financial realities, or, further substantial adjustments downward in values of SFRs.

 

No idea about B of A specifics, but here is what I see or hear lately for SFRs:

1. Varies enormously geographically. In some areas, the market continues dead or comatose.

2. In general, pricey homes are not as obviously neglected as lower-priced properties, but nearly all need some work. Midnight parting-out operations are much less now than they were a couple of years ago.

3. There's some talk that multiple-unit residential is looking up, even some new construction, although overall rents are down. Occupancy rate of SRF rentals is probably up slightly. Rents have dropped generally -- substantially in some areas -- but may have bottomed out.

4. Everywhere and at all levels, movement is slow and difficult.

5. Vacancy rate for SFRs is probably slightly reduced over recent highs, but there is talk of huge number of repos coming soon.

6. Some investors have been buying with renting in mind -- usually small investors, picking off good deals or even working insider angles.

7. Investors don't see any better investments around, retain confidence in real property and are looking at the long term (beyond 2012). (Liquid value of raw and agricultural land is much more stable than residential, but almost all residential has some lot value.) These folks have bought at maybe 30% to 80% off theoretical highs of the boom period, but that doesn't mean that book values of comps have necessarily been adjusted accordingly. (Each closing would need to be studied, like what is the seller obliged to do, what has been warranted but actually needed to be done.)

8. There are some real people (families) who have moved into places they are buying during the last year or two, but they are the lucky few who have secure jobs or pensions so as to qualify for,  or who have angels to provide, financing. These folks have bought at maybe 25% to 50% off theoretical highs of the boom period. Of course, there was also the federal tax credit, now long gone.

9. The upside is that, although some are buying to sit on a property rather than improve it for habitation, most of these buyers have been making improvements -- whether to rent or to live in.

10. Lumber and other construction materials going up, probably related to energy costs, and SFRs improvement trend cannot be reliably projected out into the future (winter of 2011-2012 or beyond).

 

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If B of A is on the hook for

If B of A is on the hook for 2.5 Billion. I would rather it be required to be spent on repairing the houses that have been neglected, rather than reimbursing investors who lost money on the distressed securities. We need jobs and safe affordible houses for sale or rent. Fixing up these homes and maintaining them could offer both.

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Money judgment or penalty?

Lynda Hoving:

"If B of A is on the hook for 2.5 Billion. I would rather it be required to be spent on repairing the houses that have been neglected, rather than reimbursing investors who lost money on the distressed securities. We need jobs and safe affordible houses for sale or rent. Fixing up these homes and maintaining them could offer both."

If the $2.5 Billion is seen as some kind of penalty imposed on B of A, then it could be spent on maintenance of the properties. However, if it's more like a money judgment against B of A, then the money must go to the plaintiffs.

Reimbursement of investors who have been victims of misrepresentation or grossly neglectful management should be able to expect reimbursement for their losses, assuming the investors did their due diligence. Anything else would tend to undermine the entire system that fosters savings and investment.

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