By Felix Salmon
Cheyenne Hopkins of American Banker, who first published the terms of the proposed mortgage servicer settlement in March, has now got her hands on a ridiculous paper from Charlie Calomiris, Eric Higgins, and Joseph Mason, which says that the settlement is a bad one which could cost the economy $10 billion a year.
You only need to look at the bottom of the first page of the paper to see where this thing is going.
First of all, there’s nothing in the proposed settlement saying that principal write-downs should be conducted “regardless of borrower distress.” To the contrary, the talk of principal reductions explicitly applies only to delinquent mortgages. Which actually the authors know full well, since on page 10 they say that “the settlement’s approach to loan modifications would encourage strategic default.” They can’t really have it both ways.
Check out the rest here…