David Dayen | HUD Secretary Expects “Substantial” Payment of Foreclosure Fraud Settlement with MBS Investor Money

HUD Secretary Expects “Substantial” Payment of Foreclosure Fraud Settlement with MBS Investor Money

Housing and Urban Development Secretary Shaun Donovan mostly confirmed that private-label mortgage-backed securities investors, not banks or servicers, will end up shouldering the cost of much of the imminent foreclosure fraud settlement despite the risk of litigation from investors who are likely to challenge the forced losses on their securities in court.

On a small conference call for progressive media, Donovan claimed that the money available in the settlement for principal reduction for underwater borrowers would actually come to $35-$40 billion, over double the $17 billion in nominal principal reduction that has been widely reported. The HUD Secretary said that this represented an “important first step” of principal reduction. “Relative to the $700 billion in negative equity in the country, it’s not anywhere near adequate, but it’s an important first step,” Donovan said, one which will be augmented with by “jump-starting” other voluntary principal reduction among servicers if it is found to be successful in preventing foreclosures, and other claims, including from the Residential Mortgage Backed Securities working group co-chaired by New York Attorney General Eric Schneiderman. “One reason I’ve been a strong partner (on the working group) is the opportunity to get large-scale relief for families that have been victims of the crisis,” Donovan added.

But how exactly does Donovan get to $35-$40 billion when the reports all claim $17 billion (as well as $8 billion in various penalties and checks for wrongful foreclosures, adding up to a $25 billion settlement)? He said that the topline numbers have always reflected the settlement with the five largest servicers. When you throw in the other 9 servicers who have been in discussions on the settlement, the level rises to more like $30 billion. Furthermore, “not all write-downs are created equal” in the settlement, Donovan said. The $17 billion on principal reduction always reflected “credits,” a number that the servicers would have to hit to comply with the settlement terms. Some of the credits are not dollar-for-dollar. For instance, principal reduction on loans that are over 175% LTV (loan-to-value ratio) would not get full credit because it would be a “reduction” on a house that will probably go into foreclosure anyway. “If a servicer is writing down a current first-lien mortgage, that has more value than a second lien 180 days delinquent,” Donovan gave by way of a separate example.

Rest here…



2 Responses to “David Dayen | HUD Secretary Expects “Substantial” Payment of Foreclosure Fraud Settlement with MBS Investor Money”
  1. Fury says:

    hey Donovan,
    what about us?? the defrauded homeowners— the ultimate investors?
    we invested in our homes, which later proved to be worthless.
    they were stolen from us and have broken title so they can never be sold.

    why do the MBS investors jump the line in front of us?

    pay back our stolen money FIRST!
    we deserve it!

  2. Debt Slave says:

    This is an outrage. The servicers are teflon Dons.

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